Air Transport Services Group Inc (ATSG) Q4 2020 Earnings Call Transcript

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Air Transport Services Group Inc (ATSG 2.26%)
Q4 2020 Earnings Call
Feb 26, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the Fourth Quarter 2020 Air Transport Services Group Incorporated Earnings Conference Call. My name is Hilda and I will be your operator for today. At this time, all participants are in a listen-only mode and later we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the call over to Mr. Joe Payne, Chief Legal Officer of ATSG. Mr. Payne, you may begin.

Joe Payne -- Chief Legal Officer

Good morning and welcome everyone to our fourth quarter 2020 earnings conference call. We issued our earnings release yesterday after the market closed. It's on our website atsginc.com.

Let me begin by advising you that during the course of this call we will make projections and other forward-looking statements that involve risks and uncertainties, our actual results or other future events may differ materially from those we describe here. These forward-looking statements are based on information, plans and estimates as of the date of this call. Air Transport Services Group undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions, factors, new information or other changes.

These factors include, but are not limited to the following, which relate to the current COVID-19 pandemic and related economic downturn. The pandemic may continue for a longer period or its effect on commercial and military passenger flying maybe more substantial than we currently expect. It may also affect our workforce and staffing capability, our ability to access airports and maintenance facilities, our customers credit worthiness and the continuing ability of our vendors and third-party service providers to maintain customary service levels.

Other factors could also impact the market demand for our assets and services. These include our airline's ability to remain on-time service and control costs. The cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration. Fluctuations in ATSG's traded share price and in interest rates, which may result in mark-to-market charges on certain financial instruments; the number, timing and scheduled routes of our aircraft deployments to customers; our ability to remain in compliance with key agreements with customers, lenders and government agencies; changes in general economic and/or industry specific conditions; and other factors as contained from time-to-time in our filings with the SEC, including the Form 10-K, we will file next week.

We will also refer to non-GAAP financial measures from continuing operations; including adjusted earnings, adjusted earnings per share adjusted pre-tax earnings and adjusted EBITDA. Management believes these metrics are useful to investors in assessing ATSG's financial position and results. These non-GAAP measures are not meant to be a substitute for our GAAP financials and we advise you to refer to the reconciliations to GAAP measures, which are included in our earnings release and on our website.

And now, I'll turn the call over to Rich Corrado, President and CEO for his opening comments.

Rich Corrado -- President & Chief Executive Officer

Thanks, Joe, and welcome everyone. I want to begin by again thanking our employees for the outstanding service they provided this past year to our customers under all kinds of adverse conditions. We continue to invest more on safety and productivity measures to improve performance across all of our businesses. This is ATSG's culture in action. We will keep improving and innovating to improve service long after the pandemic ends. Additionally, all three of our airlines have flown vaccines and other related COVID supplies in support for our customers.

For all of 2020, we exceeded our adjusted EBITDA goal with revenue and growth from all of our principal businesses. The pandemic continues to affect our results overall and our passenger flying in particular, but demand for our Boeing 767 freighters, both leasing in flying, remains very and not just for those coming out of conversion every month. We are redeploying return freighters to new customers at a faster pace than before. I have great confidence in our results for 2021 and beyond. Based on the strongest order book in our history for our 767 freighters and support from customers who choose us to fly for them, but I'm also tempered by the knowledge that the end of the pandemic has proven hard to predict, including the willingness of the flying public to return to the air in pre-pandemic numbers.

I'll have more to say about our outlook shortly, Quint Turner, our CFO is standing by to recap our 2020 results. Quint?

Quint Turner -- Chief Financial Officer

Thanks, Rich, and welcome to everyone on the call this morning. As Rich said we'd beat our $490 million target for 2020 adjusted EBITDA by a healthy margin. On a consolidated basis, fourth quarter revenues were down a bit from $403 million to $399 million; the principal factor was lower block hours for passenger flying at Omni from a year ago and ATI's combi fly.

Fourth quarter GAAP earnings of $2.3 million or $0.04 per share basic was substantially better than our loss of $41m or $0.70 per share a year ago. The quarterly non-cash loss from revaluing our liability for the Amazon warrants was $38 million, roughly half of what it was a year earlier. We also booked $12 million in fourth quarter benefits from our 2020 CARES Act grants. Finally, we had a $4.5 million positive swing in our retiree benefit adjustment and a smaller loss from our joint venture than the prior year. Interest expense was down for both the quarter and year, we had lower rates on our credit facility balances and lower debt levels overall than in 2019. Depreciation and amortization expense increased $5 million for the quarter and $20.5 million for the year from more aircraft in service. Those and other items are excluded from our adjusted EBITDA, which was $122 million for the fourth quarter, down $2 million and $497 million for the year, up $45 million.

Adjusted EPS for the fourth quarter was $0.38 versus $0.56 a year ago. Our fourth quarter adjusted share count increased 10% year-over-year related to an increase in our stock price. Our 2020 capital expenditures totaled $510 million that included purchases of nine Boeing 767-300 passenger aircraft for freighter conversion plus ongoing mod costs. The total was more than we anticipated last November, but necessary to respond to strong demand for our 767 freighters that as pushed our backlog well into 2022. One factor was Amazon's request to front load its 2021 freighter deliveries. Five of the 11 767-300s we leased in this year will enter service in the first quarter and seven in the first half. Today, we project that we will spend slightly less in 2021 than last year. Rich will cover our 2021 capex plan in a moment.

On a segment basis CAM, our leasing business, led the way for both the quarter and year. CAM's pre-tax earnings increased 21% for the quarter and 13% for the year. It's externally leased fleet grew by four 767s during the fourth quarter and by 11 for the year. Eight of CAM's 767's were in conversion at year-end, down from nine at the end of September versus eight a year ago. It purchased two 767 freighters and nine passenger 767's for conversion last year or 11 overall, seven of which are for 2021 delivery. It expects to buy 13 more 767 in 2021 for freighter conversion.

Pretax earnings for our ACMI Services segment, which includes our two cargo and one passenger airlines, were down $4 million for the fourth quarter, but more than double to $67 million for the year. Our express package network flying for e-commerce customers increased sharply for the quarter and year, but passenger flying dropped significantly. Fourth quarter block hours were up 1% overall, but Omni's hours were down 20% and our combi block hours fell 41%. Combi flying will likely remain down at least through the first half.

We mentioned in our earnings release that Omni Air has been awarded another $37 million in grant funds this year from funding in the federal government's PSP2 program set aside to help passenger airlines coping with the pandemic. Those funds require and enable us to keep Omni's entire workforce on board through March. That is on top of the $75 million to total grant funds we were awarded last year to help us retain our Combi flight crews ATI and Omni's passenger aircraft crews. Please keep in mind that our practice is to exclude those grant funds from our adjusted results while continuing to absorb the salary and benefits for the employees we might otherwise have furloughed. So, to the extent we carry cost to maintain staffing levels in 2021 due to this and other federal support we may seek, our adjusted EBITDA and earnings would be reduced.

We also said in our release that the December ratification of the new amendment to the collective bargaining agreement with our ABX Air pilots will add $7 million to $8 million to our wage and benefit costs in 2021. This amendment became effective January 1 and will add to an already difficult first quarter comparison to last year when pandemic effects were not fully realized. ABX Air has always had great on-time performance record. We believe that the six year amendment will cause both potential pilot recruits and customers to look with greater confidence toward ABX Air as a long-term provider of ACMI and CMI support.

Revenues from our other businesses, grouped as other activities, grew 8% and 6% respectively for the quarter and year, largely on growing fuel sales to Amazon. But they had pre-tax losses for the quarter and year. We incurred start-up costs at two postal facilities that our logistics group has opened recently and higher margin heavy maintenance work for external customers remain down as many of the passenger aircraft, we support remain part.

With that summary of our financial and operating results for the quarter and the year, I'll turn it back to Rich for some comments on our outlook. Rich?

Rich Corrado -- President & Chief Executive Officer

Thanks, Quint. A year ago in the early stages of the pandemic, we took note of the risks that posed but advised you that our business model was resilient enough to adjust and we would achieve good results for the year. That was true in those early days of 2020 and remains true now in early 2021, as we look ahead toward what we hope will be a year of recovery for the economy and the transportation sector as a whole.

Despite continuing uncertainty, we expect our business model to provide and other year of revenue and adjusted EBITDA growth in 2021. When the pandemic took hold last year, we had to dial back our expectations. We were fortunate last spring and summer to pick up several short term passenger charter assignments to offset the loss of commercial passenger charter demand resulting from the pandemic, but as fall arrived, the vacation and other commercial charter companies we typically serve were facing their own pandemic effects, which impacted our fourth quarter and will continue at a minimum through the first half of this year.

In the meantime, our businesses are performing at projected levels this year. We are on track with our aggressive freighter deployment schedule and our customer service remains strong through the winter months. We have good people, we are tracking more of them and we are giving them even more and better tools to work more effectively. The continuous improvement processes we have discussed before, include new software and other systems that monitor more components of our aircraft in real time and we use that data to compare and predict performance and focus our preventative maintenance. Driving out cost from our parts and maintenance operations has been one of my foremost goals at ATSG and we are on course in 2021 to start seeing results from those investments and our procurement optimization efforts.

While the pandemic has hurt demand for the passenger routes that we fly, the bigger story is that our cargo airlines, very competitive sources for flexible on-time performance in the networks that they serve. They are the Number 1 providers of domestic outsourced airlift for their principal customers and are growing as a group. We expect them to continue to grow in 2021 under expanded Amazon flight schedules and steady demand from the Department of Defense and DHL. But as Quint noted, there Adjusted EBITDA contributions will reflect, among other things, the impact of our ABX Air labor agreement and crew costs that would have been lower except for our federal support. The pandemic is clearly stimulating demand for mid-sized cargo aircraft, our core assets. Not only are we placing record numbers of our own newly converted freighters into service, including the five we have leased to UPS over the last 18 months, but we were also releasing the 767 we get back faster than ever before. Many are going to new international customers like MasAir in Mexico, Astral Aviation of Kenya and Raya Airways in Malaysia. We're confident that we'll be able to deploy more of our 767's outside the US in this and future years.

Our latest venture, as a way to leverage CAMs conversion and leasing expertise for other airlines that want to build their own cargo fleets. In January, we agreed to buy two 767 passenger jet from Air Canada, convert them to freighters and lease them back into Air Canada's own cargo operations. We think we can find more such opportunities as other airlines assess the long-term passenger versus cargo potential of their fleets. In addition to the 11 767's we've scheduled to lease to Amazon this year, you have likely read that they are purchasing and converting some 767's on their own. We're not surprised at this development as Amazon has been investing heavily to expand its air network in anticipation of the opening of its new US hub at the Greater Cincinnati Airport this fall. We anticipate that Amazon, like other large network operators, may source freighter capacity from both acquisition and leasing in the future. And we anticipate CAM will remain an excellent source for any leasing capacity they may require.

ATSG's business model is uniquely structured to support our customers in a variety of ways including through our airline's fast operating experience in an expedited air cargo network. We are proud of the level of service our airlines offer their customers and as I mentioned earlier, we invest in continuous improvement. Customers such as Amazon and DHL certainly noticed our focus on service. And we anticipate that they may ask us to operate aircraft they own or lease from other sources. We believe that by the end of this year, we'll be operating at least 46 aircraft to Amazon's network under our CMI agreement compared with 33 at the end of 2020. You may recall that we began flying the first five of those aircraft for Amazon more than five years ago and completed our first dry lease and CMI agreement with them in March of 2016.

Today, we have commitments for at least 15, 767-300 leases in 2021, including 11 767-300s we will lease to Amazon this year. We are negotiating with customers for nine 767-300 leases in 2022. And we have indications of interest from several customers some in new global markets for multiple leases of 767 freighters beginning as far out as 2025. We are sourcing more feedstock, making conversions flaw [Phonetic] commitments and setting prices and terms that meet our rate of return requirements. We will spend more for capex and hire more flight crews in 2021 than we had expected. But that spending will build our leasing and airline cash flow projections well into the next decade.

The Airbus A321 freighter conversion design we developed with our joint venture partner Precision is in the final stages of FAA review and we're hoping for approval in March. Owners of A321 aircraft have already approached us about conversions and we intend that our PEMCO Conversion subsidiary can begin by midyear. Our 2021 capex budget of about $500 million does not include any money for purchases of our own A321 feedstock, but we do expect to be in the market before the end of the year.

We exceeded both our initial projection and our November update for 2020 adjusted EBITDA through a combination of great service, more first half charter opportunities and strong e-commerce demand. This year's adjusted EBITDA target is at least $525 million. We're taking a wait-and-see approach to positive indicators about the economy and fewer pandemic limitations as the year progresses, particularly in the second half. We are taking note as well of potential competition from scheduled passenger carriers seeking charter opportunities for their idle aircraft. Our current outlook factors in continued pandemic effects on our commercial passenger and combi flying. Our plan projects 57% of our adjusted EBITDA to be realized in the second half. If we see early signs of progress, particularly, in our commercial passenger and the aircraft maintenance businesses, we may be able to give you a better assessment when we meet again in May.

That concludes our prepared remarks. Quint and I, along with Mike Berger, our Chief Commercial Officer are ready to answer your questions. May we please have the first question operator?

Questions and Answers:

Operator

Thank you. The first question comes from David Ross from Stifel. Please go ahead.

David Ross -- Stifel -- Analyst

Yes. Thank you and good morning, Rich and team. Wanted to talk first I guess about the A321 freighter. Some are -- I guess there's an article that DHL is already putting some into service overseas. How do you expect to be able to compete with the others who are maybe already doing their conversions? And what's the appetite look like from the customers you're talking to over the next couple of years?

Rich Corrado -- President & Chief Executive Officer

Yes. It's a good question, Dave. So the A321, we're hoping to have the STC approval by the end of March. And there's only one other conversion house that's delivering aircraft right now and that's EFW and I think they have a couple of aircraft out there, one of which was produced for a lessor called Vallair and Vallair is leasing that aircraft to SmartLynx, which is the operator that's flying for DHL. Our first aircraft -- that's in conversion right now, that's prototype model is actually a Vallair aircraft as well and slated to go to SmartLynx. And so we believe that that will enter that same profile network. In that article, I believe they indicated that SmartLynx was lined up for a couple more aircraft this year. And so -- and we believe -- we welcome the competition as it relates to DHL and SmartLynx, looking at both aircraft.

We believe our design is superior. We worked with Precision and as an operator we focused on looking at this aircraft as the way an operator would want to view it. And so there are some differences in our design that would make the aircraft more operator-friendly both on the [Indecipherable] and container loading and also on the way the crews would utilize the aircraft both in jump seating and being able to have their luggage on the upper deck. So we welcome that opportunity. We're hoping to start the production line midyear this year. We're also getting PEMCO, our conversion subsidiary that's part of our airborne maintenance and engineering services group, that's located in Tampa and the conversion business mid-year as well and start a line going to deliver more aircraft.

Mike Berger -- Chief Commercial Officer

Yes. I would just add Rich that DHL has indicated they do plan to compare the airplanes as you mentioned.

David Ross -- Stifel -- Analyst

Okay. And then just a follow-up on that. As we think about the opportunity over the next several years because the idea is that there's a lot of 757s being retired that need to be replaced. If you think about ATSG's revenue stream from the 321 conversions, are you expecting most of the business to come through the traditional ACMI route or the A plus CMI in CAM and the other segment, or is there going to be a bigger revenue stream coming out of PEMCO and the conversions? And then how do you think about that on the 321 opportunity?

Rich Corrado -- President & Chief Executive Officer

Yeah, so initially beginning this year, 2021, we'll be taking advantage of the joint ventures STC, so that we'll be participating in kind of the kit and the conversion piece of this. On the touch labor side, as I said PEMCO will also be participating, so they'll be converting the aircraft directly. So those two segments will go into play this year. We'll be in the market this year, call it the second half of the year, looking for -- we're looking for feedstock now, but we'll be looking to make some transactions toward the second half of the year into 2022 to start building a leasing portfolio at CAM. The prognosis of whether we would fly the aircraft or not depends on our large customers, where they want us to fly it. As we have in the past, we generally don't do a lot of spec work and throw aircraft onto our certificates to try to leverage new charter business. It's not a big robust piece of what we do. And so we're going to move in that direction. Our existing -- one of our existing customers, DHL does fly a lot of 757s as does UPS and FedEx. There are a number of airlines around the world in Europe and in Asia that fly 757s as well. So the -- on the kind of the operating and leasing side, there should be robust demand.

The other interesting thing and you see this in most situations with new conversions, is leasing companies that have passenger aircraft portfolios that are coming off lease, generally look to, whether they can get a second or third lease on an airplane passenger wise. And if not, then they look to -- maybe look to convert that aircraft and create a new revenue stream and a new life frankly on the aircraft. We've already gotten a lot of interest from leasing companies that have portfolios. Obviously, with the pandemic and the utility if you will of new leases and putting those passenger aircraft back into service is more challenged right now. So, we're seeing an uptick certainly of interest on the conversion -- on the STC and conversion side from leasing companies looking to get in as well. So it's a unique stream that we're watching closely.

David Ross -- Stifel -- Analyst

Excellent. Thank you.

Operator

Thank you. Our next question comes from Jack Atkins from Stephens.

Jack Atkins -- Stephens Inc. -- Analyst

Great. Good morning. Thanks guys. So I guess maybe just to kind of go back to the outlook for 2021, Rich or Quint, maybe if you want to take this as well. Just curious, you're absorbing a fair amount of costs related to the passenger charter and the combi flying that I guess that the hope is that will come back at some point once the world normalizes. Is there a way to think about the headwind that that's maybe serving the profitability in 2021? Just kind of help us think about that, because the idea would be one day that would return back closer to normal and you'd be able to absorb that overhead and that would go from being a headwind to more of a tailwind.

Quint Turner -- Chief Financial Officer

Yeah I mean, Jack this is Quint. I mean, as you noted, if we have a headwind going into this year, it's related strictly to the pandemic and the passenger operations. And we talked a lot in earlier quarters about our successful efforts to really mitigate some of that through taking the opportunity to do some charters. Some of those charters were also driven by pandemic requirements, PPE and taking -- and repatriating citizens and so forth. And so, we saw more and I think we told you guys when we talked in November or October, we expected to see more of that in the fourth quarter because, we didn't foresee as many of those opportunities. And that's kind of what we're looking at, as we head into at least the first half of this year. Our view is that we're going to continue to see those pandemic effects.

The primary places you see them obviously is in Omni's commercial operations in particular and also in the combi flying that we do. I mean, we've been -- we've seen our hours drop for example on the combi by something like 40% over what they had been. And the opportunities to mitigate that, while they may come about, there may be some of those or not as clearly visible as they were heading into the pandemic. So that's kind of the -- I think Rich mentioned that, the first half we're expecting about 43% of our EBITDA in the first half and 57% in the second and that reflects our view that we'll see recovery in some of those opportunities as we move forward. And we also get more scale as we put additional CAM leases in place, moving through the second half of the year. Some of the opportunities we had early on in 2020 for those charters, tended to be pretty profitable opportunities. As is often the case with charters that need to be done in a compressed time frame, you typically are able to realize a little better margin on some of those. And so, that again presents a little bit of a headwind going into the coming year. But in terms of where we invest our capital for aircraft, as Rich said, on the cargo side, we've not really seen any more robust environment for demand than we're seeing right now. And we're achieving the returns we're getting there. And of course that was also a big part of our story last year.

Jack Atkins -- Stephens Inc. -- Analyst

Absolutely, absolutely. And all that makes sense Quint and thanks for that additional sort of color there. I mean, Rich, when you sort of think about where the business is today, you've got I think just an unprecedented level of visibility into customer demand. And I think there's a concern in the market that, air freight has been a beneficiary from the pandemic to some degree. But I guess, what your customers are telling you with their desire to lease planes in 2022, and then you've got visibility you said through 2025 for multiple aircraft, what is that telling you about the stickiness of what's happening in the business right now and the rise of e-commerce penetration not just in the United States but more globally?

Rich Corrado -- President & Chief Executive Officer

Well, Jack, I think before the -- even before the pandemic, e-commerce was dominating growth in air cargo. If you look at air cargo in general, you've got two broad segments general air cargo, which is your intercontinental large aircraft moves that ebb and flow with global trade. And you saw in 2019, the market dipped by 3% and you saw the impact that that had on large charter operators that have large aircraft and they had a very rough and rocky year. 2019 was a record year for us, and 2020 was an even better year because we're finally tuned toward express and that's being powered by e-commerce.

So that's the other second -- the other segment is this express network operator. And that's over 50% of the global fleet of aircraft is with the integrators. And so -- and that's where we play. Now, if you look at e-commerce now, it's growing significantly. It's up -- depending on which analyst you look at it's up 30% to 40% in the US, depending on which month you look at and it's -- in 2020. Obviously, that was powered by the pandemic, but it's bought -- it's brought a whole host of new consumers that would not have otherwise used e-commerce that are now using e-commerce and are predicted to stay and continue to use that even when the pandemic is finally over. So that stickiness in your words is predicted to stay. What's great for us and we've talked about this a lot is we're not -- other than our passenger operations on the cargo side we don't -- we're not a big charter operator. We don't have a lot of assets hanging around waiting for charters. They're all utilized on -- generally on CMI for customers. And so what's great about what's happening with our business model is this spike in cargo is leading to long-term dry leases. So long after this pandemic's over, we'll still be getting very strong cash flow from these aircraft that are leased, and will be leased all over the world both into the large integrated cargo networks and into networks in other parts of the globe. I don't know, Mike, if you have more --.

Mike Berger -- Chief Commercial Officer

I'd just add a little bit and then -- Jack I appreciate you bringing up some of the growth opportunities that happened on e-commerce. As Rich said, it really stands up for what our model is all about, right? I mean we saw great support and great growth pre-pandemic and certainly through the pandemic, and we're going to see it coming out of it. But the statistical side of e-commerce, you've gone from 14% e-commerce in terms of retail U.S. retail sales in 2018, all the way to well over 21% now. But what we're excited about is that from a global standpoint, retail e-commerce sales across the globe are really starting to propel in places that, we're starting to grow into. So for Latin America, for example, over 36% growth in e-commerce, and we talked about we're putting airplanes down in that part of the world into places like Africa, where they're just under 20%. So we see great e-commerce growth across the globe. And as we penetrate, new markets that's what makes us really excited. And as Rich talked about, it's not only our dry lease piece of it it's where they're going to and who our customers are serving. And that plays right into where the growth engine is and that's e-commerce and m-commerce across the board.

Jack Atkins -- Stephens Inc. -- Analyst

Okay. Okay. That makes sense. Maybe last question, and I'll turn it over. But just given the level of demand that you're seeing for your assets right now, is that giving you incremental positive opportunities to maybe price more aggressively on some of these leases? That's question one. Question two, are you seeing opportunities to maybe extend the term of these leases? I think the Amazon leases are 10 years at least the most recent leases. What about some of these other customers? Are they multiyear leases? Could you maybe kind of help us kind of think about that? So curious on pricing and then lease terms as well.

Mike Berger -- Chief Commercial Officer

Yeah, we have seen -- we seen our leases are normally, Jack, five to seven-plus years or so. And we have seen a tick-up for our lease -- our monthly leases. So you're absolutely right about that. The demand has allowed us, not only to stabilize prices, but also take increases. The other thing it's done, it's allowed us to -- on our releases we've gone out and been able to -- as leases end and we go into new ones with different customers or the same customers, that's allowed us also to go out for multiple years, five-plus years, not only on our 300s but even on our 200s, which has really done a great job and it still remains a very reliable plane. So, yes, no doubt about it. The market has certainly allowed us to take our rates up slightly and also allow us to take our lease terms out into multiple years for the future.

Jack Atkins -- Stephens Inc. -- Analyst

Okay. That's great to hear. Thanks again for the time, guys. Congratulations on a great 2020.

Mike Berger -- Chief Commercial Officer

Thank you, Jack

Operator

Thank you. Our next question comes from Helane Becker from Cowen.

Helane Becker -- Cowen and Company -- Analyst

Thanks very much Operator. Hi everybody, thank you for the time. I just have a couple of questions. When you're out there looking at feedstock are you seeing a lot of competition to the same aircraft? And is it driving up prices?

Rich Corrado -- President & Chief Executive Officer

That's a good question, Helane. It's interesting, because there's a lot of talk in the market about, because of the pandemic operators are looking to get out of aircraft or they're parking aircraft and looking to flip airplanes into the cash flow, etc. etc. But frankly, we have not seen any spike in demand related to aircraft. There's -- the competition we tend to see out there is from the large integrators and operators. We don't see it from -- necessarily, from other leasing companies.

The other thing is, we did this program with Air Canada that we thought was unique. We were in the process of acquiring two Air Canada jets from a leasing company and then we got into a conversation with Air Canada directly. And one of the things we thought about, as a result of the pandemic, combination carriers or carriers that were combination carriers, handling both passengers and cargo, or even passenger carriers, were going to rethink that -- what cargo means and cargo revenue means to their overall growth profile, particularly, as you saw in the pandemic, where a lot of them were -- were customizing, if you will, their passenger jets to operate them as freighters. So we got in this deal with Air Canada where we acquired their two 767-300s from them. We're going to convert them and then we're going to lease them back. And so, that was a unique program and we've talked to a few other operators about the potential to do that too. So that is one area where, there's kind of some availability, but it's a stickiness availability where we could take advantage of those types of things.

On the competition side, some of the things that we see is that, some operators that are looking for feedstock only want really young airplanes. Your Chinese operator, as an example, SF Express, they want an aircraft that's 15 years or younger and we'll take 15 years or older. So we don't really butt heads with them when we're bidding on things. But we've been able to -- we've got our order book full for this year. We've got all the feedstock aircraft we need to deliver, all the airplanes that we're delivering this year and we're working on 2022 right now. We've got slots lined up for 2022 and we've got, probably, about half of them full with feedstock for 2022. So where we sit right now in the end of February, we're in really good shape for next year. And that's what we're planning and looking forward to as we go forward. I don't know, Mike, if you have any --.

Mike Berger -- Chief Commercial Officer

The only thing I would add Rich is that we -- there's plenty of feedstock in regards to other engine types and we're in the midst of evaluating Pratt-powered 767-300s. Traditionally, the majority of our fleet, as you guys know, is GE-powered and we're now taking a hard look at the Pratt-powered engine. Now we do fly three today in our ABX network today, so we're familiar with it and it flies just fine from a reliability standpoint. So we're not concerned about feedstock, specifically when we think about the broader piece of it in engine types and we'll go from there.

Helane Becker -- Cowen and Company -- Analyst

That's very helpful. Thank you. I just have two clarifying questions if you don't mind. On the Air Canada leases, are you -- because they were leased aircraft before. So do you just keep the same monthly lease rate or do they renegotiate that lease rate with you?

Mike Berger -- Chief Commercial Officer

The two aircraft that we acquired from them they were owned. So they had some fleet that was owned and some of that was leased. And so these two particular aircraft are owned and were -- those are the ones we bought.

Helane Becker -- Cowen and Company -- Analyst

Okay. So when they pay you every monthly rent rate is that negotiated? How is that negotiated I guess I'm trying to figure out?

Quint Turner -- Chief Financial Officer

It's no different Helane that any feedstock plan we would buy and convert and lease at a market rate.

Mike Berger -- Chief Commercial Officer

Yeah, we purchase the airplane. We'll convert the airplane, Helane and the lease won't commence until we redeliver the airplane back to them and that's when they'll start paying the monthly rent.

Helane Becker -- Cowen and Company -- Analyst

Okay. That's very helpful. Thank you. And then just on the pilot pay increase, is that all in January then that full $7 million or $8 million you mentioned is that all in the first quarter?

Quint Turner -- Chief Financial Officer

No, that's an annual impact Helane.

Helane Becker -- Cowen and Company -- Analyst

Okay. All right. So we should think about it as like whatever $2 million a quarter kind of thing?

Quint Turner -- Chief Financial Officer

Exactly.

Helane Becker -- Cowen and Company -- Analyst

Perfect. All right. Thanks guys.

Rich Corrado -- President & Chief Executive Officer

Thanks, Helane.

Operator

Thank you. The next question comes from Steve O'Hara from Sidoti & Company.

Stephen O'Hara -- Sidoti & Company, LLC -- Analyst

Yeah. Hi, good morning. Thanks for taking the questions.

Rich Corrado -- President & Chief Executive Officer

Good morning, Steve

Stephen O'Hara -- Sidoti & Company, LLC -- Analyst

Good morning. Just on the CARES Act benefit that you exclude from earnings, I mean is there some sort of -- is there a mismatch there in terms of the -- you're kind of carrying extra salaries things like that. I guess I can understand excluding the benefit, but you're also carrying heavier expenses too. I mean, is there the right way to think about maybe what EBITDA would have been kind of on an apples-to-apples basis, if you kind of factor in the benefit from CARES and what that offset in terms of the cost that you're carrying -- the extra cost that you were carrying?

Quint Turner -- Chief Financial Officer

Thanks, Steve. It's a good question. The benefit is based on the formula that's in the legislation and it tends to be based on a view more of the total payroll. And when it comes to impacted positions that might be furloughed due to reductions that's more predicated on the -- those that are direct involved with loss of flying. So it's not a perfect -- it's not as if you can equate the benefit with the dollar-for-dollar or anything with the potential furloughs.

Stephen O'Hara -- Sidoti & Company, LLC -- Analyst

Okay. I guess I'm just trying to figure out maybe with the negative impact on the quarter was from carrying those extra salaries?

Quint Turner -- Chief Financial Officer

Yeah. I mean it depends upon I guess the timing and the level of impact to specific operations calmly [Phonetic] and so forth and we haven't really -- we haven't calculated exactly what that might have been. It's just more of -- we want to make sure that you understand the relationship between what's in and what's out of our adjusted results and the rest of impacts

Stephen O'Hara -- Sidoti & Company, LLC -- Analyst

Okay, OK. And then just maybe on the pandemic headwind that you're considering for 2021. And I had a user error here on the call early, but is there a way to think about what you're factoring in kind of in the first half of the year, I think you said 57% in the second half. How do you think about the -- what you're factoring in? Without the pandemic what's the run rate earnings look like, or at least what are you factoring in for the pandemic in the first half of the year?

Quint Turner -- Chief Financial Officer

Yeah, again, I guess the -- if you look at where the year-over-year changes are and what we've got in there, the biggest impacts we've said are obviously the passenger portions of our operation, which is Omni and which is also ATI. We haven't really, you're talking about an earnings impact or are you talking about an EBITDA impact, or what was your question?

Stephen O'Hara -- Sidoti & Company, LLC -- Analyst

Either.

Quint Turner -- Chief Financial Officer

Yeah, I mean it's tough to -- I guess calculate exactly what is related to that and we haven't. If we were going to put something like that out, I think, we probably would have included in the materials we've published last night Steve. We can tell you that the biggest year-over-year drop is at Omni. And if you look at the portion of their business for example that is commercial passenger driven, it's probably about 20% of their revenue, which is about $100 million a year. And you can figure an EBITDA margin on that revenue. If you -- which -- you can see what the overall EBITDA margin is. If you look at the combi flying, its flight hours are down about 40%. You're talking about probably another EBITDA margin on about call it $40 million of revenue for the combi. So you've probably got about $140 million of revenue that's impacted at an EBITDA margin. And that's about as good a gauge as I could give you because to do a more refined estimate would involve a lot of assumptions. But if you apply that to that that might be one way to think about the EBITDA impact related to the pandemic. And remember we're expecting that to improve in the second half. We've made assumptions in our guidance about an improving picture in the second half.

Mike Berger -- Chief Commercial Officer

I mean, the other headwind you have around the commercial Omni business is that just the competitive nature of it with all the available capacity that's in the marketplace as they go for opportunities. In the first half, it will come at a lower profitability, but those headwinds will ease as we progress through the balance of the year.

Quint Turner -- Chief Financial Officer

Certainly, the good news is if you look beyond if you believe the pandemic as we do, we'll see that lessening impact in the second half. And you look out very far at all into 2022, those aren't impactful beyond the pandemic period. And in the meantime other portions of our business particularly the cargo portion well as Mike and Rich just described is performing extremely well and continuing to make gains looking into 2022.

Stephen O'Hara -- Sidoti & Company, LLC -- Analyst

Okay. No, that's helpful. And then two last ones. Just if you think about the run rate heading into 2022, I mean, it should seem like you should have, I guess, if I take the second half and maybe annualize that and haircut it a little bit for maybe first half is slower typically, I mean, it seems like you have a pretty good runway for 2022 EBITDA. I mean, is there a way to think about the run rate heading into 2022?

Quint Turner -- Chief Financial Officer

Well, I think we're going to -- we're -- I don't think today we'd necessarily want to give you a 2022 guidance Steve. But again, assuming that the pandemic impacts clear up certainly with the onset of at least 15 additional leased aircraft and you can kind of know what those contributions are like on a per unit basis. I think you're -- you can sort of make your own assumptions there. We'll say more about it obviously as we move through the year, and we get more visibility on exactly where the pandemic effects are going and at what rate. But I think it's true that if you assume that things are resolved on that issue by the end of the year, 2022 would certainly be accelerated because you wouldn't have these passenger flying impacts that we're talking about.

Mike Berger -- Chief Commercial Officer

I mean, you get back to the core of it. With the number of airplanes that we're going to put into service in 2021, the number that we're providing in terms of high-single digits for 2022, the feedstock 13 airplanes, all plays to the model that Rich talked about in the beginning of really turnkey solutions, right, because the more airplanes we're putting out in the marketplace, specifically customers that not only are leasing airplanes from us but we're also doing the maintenance on through our MROs, as well as our logistics company, as well as flying and when our customers need them. Really, really pleased to how the model has performed and will perform even at higher levels with incremental numbers.

Stephen O'Hara -- Sidoti & Company, LLC -- Analyst

Okay. And maybe just lastly on the A321. How long does that take to get on your certificate, or -- and is there in terms of the airlines how long does it take them to get up to speed? If you were to buy the aircraft tomorrow when could you start flying it for customers?

Rich Corrado -- President & Chief Executive Officer

It generally takes about six to nine months to get an aircraft on certificate with an airline. And usually you need an MSN serial number to do that. So that's how long it takes to get at that. And that includes training pilots and getting your maintenance, your flight, your operations, your ground and your cargo handling manuals all straightened out and approved by the FAA. That's kind of what the view would look like.

Stephen O'Hara -- Sidoti & Company, LLC -- Analyst

Okay. Got it. Thanks very much for the time.

Rich Corrado -- President & Chief Executive Officer

Thanks, Steve.

Operator

Thank you. [Operator Instructions] The next question comes from Chris Stathoulopoulos from Susquehanna.

Christopher Stathoulopoulos -- Susquehanna International Group -- Analyst

Good morning. Thanks for taking my question. So Quint or Rich I understand the conservatism around the EBITDA guide for this year given the uncertainty with COVID. But assuming the vaccine rollout here continues to move forward and we're at let's say 50% of the US population has at least one shot by mid-July. Could you walk us through what your utilization assumptions are for commercial passenger and US military flying in that $525 million? And of the 15 dry leases this year how many of those are CMI? And for 2022 just -- I think you said you have nine plans in terms of dry leases. And of those what do you have locked in for CMI? Thanks.

Quint Turner -- Chief Financial Officer

Yes. Rich do you want to take the lease part and I'll take a shot at the --.

Rich Corrado -- President & Chief Executive Officer

Yes. Out of the 15 leases this year 11 will be at this point CMI operations all for Amazon. And then in -- right now on the nine going in next year we're -- there's no nothing firm on the CMI. And I should also say on the remainder of this year there may be additional CMI for other customers as well. So we may have an upside on the CMI both in 2021 and 2022.

Christopher Stathoulopoulos -- Susquehanna International Group -- Analyst

Okay. And on the utilization assumptions?

Quint Turner -- Chief Financial Officer

I don't know Rich, if you mentioned but we do anticipate we might have a shot to fly some of the -- a couple of the Amazon-owned planes.

Rich Corrado -- President & Chief Executive Officer

Correct.

Quint Turner -- Chief Financial Officer

Yes, right, right. Okay. So 13. I think we had assumed about -- that was -- maybe as many as 13 will be added to CMI this year.

Rich Corrado -- President & Chief Executive Officer

Right. So there may be an upside there as well. On the utilization piece, it's not just US. And part of the disruption of service and activity has been particularly on the combi side and even with Omni, when they're flying for the military, it's not that the -- on the combi side, let's take that first. It's not that the military doesn't want to fly. It's that the venues that they're flying into have significant restrictions: Singapore, Bahrain, Ascension Island, where for us to fly in, the pilots would get quarantined for an excessive amount of time, those types of things. And so it's a situation where it's not that the customer doesn't want to fly into these venues it's they're unable to effectively and productively do that.

And the same goes for some of the Omni flying. Some of the airports they normally would service are not allowing foreign operators to fly through. And so that's disrupted on the military side some of their opportunity going forward. So it's not just the vaccine rollout in the US. It's the success of the vaccine in other countries and in the military for which we would -- for those areas which we fly to. So that's what's impacting kind of the utilization on how we feel we'll rollout of this. We have some commercial customers such as, Vacations Hawaii that was a regular charter business for many years for Omni flying between Honolulu and Las Vegas. They're projecting mid-year to be back in service. But depending on, how the pandemic goes that may get disrupted. And so we don't have that in our first half, but we do have some of that revenue in our second half, is a good example. And we're in regular dialogue with that customer about their opportunity. So it's just a matter of how the markets are in terms of -- and how the public is buying into going -- utilizing that vacation type option. So those are kind of some examples of how we're thinking about getting utilization improved in the second half of the year.

Christopher Stathoulopoulos -- Susquehanna International Group -- Analyst

Okay. And of the 116 aircraft, I think you have in your release for this year-end, that's nine additional for next year. Should we think about the fleet around 125, 124-ish for 2022?

Quint Turner -- Chief Financial Officer

I think, we'll add to the nine Chris. That's sort of what we currently have -- working specifically on. But I think that, it'll probably -- we'll add a few aircraft to that.

Christopher Stathoulopoulos -- Susquehanna International Group -- Analyst

Okay. And then, Quint, cash flow from operations for this year ex-PSP2 and the aircraft impairment?

Quint Turner -- Chief Financial Officer

Well, of course, it'll all be in our cash flow statement here, that we'll publish on Monday with the K. But hang on here. Are you talking for '20 or '21?

Christopher Stathoulopoulos -- Susquehanna International Group -- Analyst

For 2021, I'm sorry, for last year 2020.

Quint Turner -- Chief Financial Officer

For last year, yeah, cash flow from operations is about what $512 million for the full year. Now that includes about $76 million of CARES proceeds.

Christopher Stathoulopoulos -- Susquehanna International Group -- Analyst

Okay, all right. And then, I can just take out the aircraft impairment. Last question, just how should we think about G&A maintenance and interest expense for 2021? Thanks.

Quint Turner -- Chief Financial Officer

Interest expense is rough -- roughly in terms of cash interest, because we do have some non-cash components. In terms of 2021, you're looking at around just over $50 million call it, $53 million of cash interest expense. And as far as -- what was your other question on D&A?

Christopher Stathoulopoulos -- Susquehanna International Group -- Analyst

Maintenance and D&A.

Quint Turner -- Chief Financial Officer

You're not -- you're talking about capex, or you're talking about the Omni expense side?

Christopher Stathoulopoulos -- Susquehanna International Group -- Analyst

On the -- just for modeling here on the income statement, I'm guessing that there's going to be some maintenance associated with the new -- as you ready the new 767s.

Quint Turner -- Chief Financial Officer

Yeah. I really -- I don't know, if we want to get into the specific modeling stuff here. Obviously, we can talk about that later, I guess Chris. I don't have an income statement here in front of me for the 2021 budget that breaks it down that way.

Christopher Stathoulopoulos -- Susquehanna International Group -- Analyst

Okay. Thanks for the time everyone.

Quint Turner -- Chief Financial Officer

Okay. Thank you.

Operator

Thank you. We have no further questions at this time. I will turn the call to Mr. Rich Corrado for final remarks.

Rich Corrado -- President & Chief Executive Officer

Thank you. I'd like to again thank all of the employees at ATSG. All of our companies have been operating at full speed during the pandemic delivering essential transportation, maintenance and logistics services to the economy. We have delivered for our customers and for our shareholders. I know I speak for everyone at ATSG, when I say, we're proud of the results achieved in 2020. And we're confident, that we'll do better this year. Our strategy has always been about long-term cash flow. And that's not going to change, simply because of a pandemic. We hope to see many of you online via Zoom or other investor conferences this spring. And we thank you for your support of ATSG.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Joe Payne -- Chief Legal Officer

Rich Corrado -- President & Chief Executive Officer

Quint Turner -- Chief Financial Officer

Mike Berger -- Chief Commercial Officer

David Ross -- Stifel -- Analyst

Jack Atkins -- Stephens Inc. -- Analyst

Helane Becker -- Cowen and Company -- Analyst

Stephen O'Hara -- Sidoti & Company, LLC -- Analyst

Christopher Stathoulopoulos -- Susquehanna International Group -- Analyst

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