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#So, you know, we always do recurrent pilot training.
Our pilots come back to the schoolhouse for their recurrency.
But, in this context we have had to hire an increased pilot workforce because we have taken on more aircraft.
We had to hire in advance of the delivery of the dash 8s.
We need to hire in advance and train in the context of the two 767 CMIs.
And we have been operating at a higher ops tempo, a higher daily utilization than we had before.
We needed to hire additional pilots for our existing fleet over and above the ones that are ---+ the deliveries just because of the higher ops tempo that we're experiencing in the fleet.
That can be lumpy.
When the aircraft come in, as three aircraft are coming in roughly about the same time, that's a bit lumpy.
We did have to bump up crew training.
That will normalize going forward.
Good morning, <UNK>.
Sure, <UNK>.
With regard to 2016, as <UNK> said, we will provide a more detailed outlook and framework, as we typically do, during our February call.
At this time of the year we are still going through, finalizing everything for 2016, so we are not in a position yet to talk about maintenance for next year.
That is obviously one of the big variables for next year.
But as <UNK> pointed out, we are confident about 2016.
We will have an additional dash 8, we'll have two more 76s.
We will have lower financing costs.
We added a 747-400 during the year so we'll have a full year of that next year.
So we are feeling good as we go into 2016.
So I haven't answered your maintenance question.
We need to do that during our February call.
The second part of your question, I'm sorry was.
Sure.
Sorry.
The dash 8 we took delivery today, and that dash 8 will operate for us in our charter segment initially.
There aren't many dash 8s operating the way we do in our charter segment, so that aircraft does really well for us.
So we are excited about placing that dash 8 in charter.
We will take advantage of that.
We expect longer term that the aircraft sometime during 2016 will be placed in ACMI.
But we are not that concerned about it.
It's going to do really well in charter and it will find a home like our other dash 8s.
All nine of them placed very profitably with long-term customers and ACMI and so will this dash 8.
Good question.
As <UNK> talked about earlier we expect pre-tax income will be greater in the fourth quarter of this year than the fourth quarter of last year.
All of our segments, the earnings should be improved over the prior year.
So on a pre-tax basis.
That's the thing to focus on and that's a great thing.
We expect ACMI will be up.
As I said, I agree with you.
We expect to see charter up.
Dry leasing will be pretty similar, but perhaps could be slightly up.
We have the $0.20 tax item that we've talked about and that relates to a benefit that we recorded in the fourth quarter of last year related to our tightened dry leasing business.
We got a lower tax rate in Singapore.
It went from 17% to 10%.
That was a one-time benefit to catch up with that rate.
We obviously won't be seeing that in the fourth quarter of this year.
I think the key things for the fourth quarter of this year is last year during the fourth quarter we had a bit of an impact from the start of the West Coast port disruption.
So prices were starting to increase as a result of that.
Maintenance expense should be lower in the fourth quarter of this year.
We expect that volumes should be up during the fourth quarter of this year and we are placing the tenth dash 8 in service and we have the additional 400 that we talked about.
Fuel decreased towards the end of last year but it is decreasing during the fourth quarter of this year as well.
And so you put all that together.
Pre-tax income we think will be higher.
We certainly expect pre-tax income will be higher.
We are harmed a bit by the tax benefit we enjoyed in the fourth quarter last year.
Welcome back, <UNK>.
Sure.
Looking at the rate per block hour during the third quarter as you said there was a change in mix.
We had increased CMI flying.
Our aircraft equivalents were up four aircraft, over 30% above the third quarter of 2014.
So we went from a little over 12 to a little over 16.
We have been growing our CMI business which naturally has a lower rate per block hour because we don't own the aircraft.
We have continued to grow that, and the rate per block hour is also highest for dash 8s, so in periods when we add more dash 8s than other small aircraft type, the rate per block hour generally goes up.
And in periods when we add more 400s and 767s, in periods when more of those are added to ACMI, the rate per block hour generally goes down.
It really is a mix affect.
And it depends what is happening during any particular quarter.
We are not all that concerned about it because we understand the mix impact, but I know it is something you all look at.
But again, when we are adding four aircraft, growing our CMI business by 30% in a particular quarter, it is something we expect to see.
Love CMI, yes.
When it comes to capital allocations we try very hard to have a balanced approach.
Our cash prioritization continues to be three primary areas.
We want to maintain a strong balance sheet and have a strong cash balance.
We want to continue to invest in assets that our customers want that are modern, efficient aircraft that our customers want, and then we also want to be able to return capital to our shareholders.
So we really have been focused on trying to do all of those, and we know it is very difficult to please everyone, but we have been trying to do all those things.
Our cash balance is very, very strong.
We have been paying off debt.
Our net leverage ratio has been declining.
We recently purchased, added a dash 8 today; we're adding two 767s that will soon come out of conversion.
We continue to look at additional other aircraft if they make sense for our business.
And as we talked about and as you just said, we repurchased over 10% of our Company back in the last few years.
So from our view point we think we are being very balanced when it comes to capital allocation.
Yes, sure, <UNK>.
This is <UNK>.
As we talked about at the one or two of the calls before that we saw military demand stabilizing, and that's essentially as we see it today.
The hours this year will meet our expectations which is a high rate of flying than we had in 2014.
And we think the level we are at now in 2015 will continue through 2016 at least.
I can give you what we expect for the full year.
I don't have that at my fingertips.
For the full year on an adjusted basis we expect a 28% tax rate.
Sure, thanks, <UNK>.
So two things.
It is important to bear in mind that of the two that are delivering one will be fairly late December and one will be January.
So in terms of the impact, the majority of that impact or that impact really is a 2016 level.
The reason we've bifurcated the two here is because they are two different contracts.
The contract on the aircraft in Titan is much longer term, and the CMI is a shorter term contract.
Sure, <UNK>.
Capitalized interest we really don't have very much of that anymore.
That's very, very minimal.
There is a tiny amount here and there sometimes for a capitalized engine and that sort of thing.
Otherwise, that has really gone away.
It is a much bigger item when we had the big dash 8 order coming.
But with regard to interest expense and interest income we paid down higher yielding debt, about $155 million that had an effective interest rate, a book interest rate of about 13%, a cash coupon rate of 8% and that interest goes away which is terrific.
We took on the convertible and that's $224.5 million.
That has a rate of 2.25%, and so we will add that interest expense.
And the pass-through certificates we have, some of those got paid off as a result of us paying off the EETCs.
That was approximately $90 million and we lose that interest income.
All of that nets to approximately for 2016 about an $0.18 benefit to earnings after tax.
We are actually not in the new fiscal year yet even though you would think we are.
The FY15 contract was extended through the end of this calendar year, <UNK>.
So, the FY16 military contract is only going to be nine months, January 1 to October 30, and that has to do with some different considerations that the military had.
We are at about a 58% entitlement for both cargo impacts.
That's pretty stable to where we were.
That has not moved very much this year nor next.
But it did 2014 into 2015.
It is a normal year, <UNK>.
All right.
So a couple things.
In terms of our ACMI customers because that's their networks, their networks continue to operate as they think makes best sense for them.
DHL, our largest customer, has increased its capacity in and out of China.
It increased its capacity on the ACMI operation that we operate for them in both Trans Pacific and intra Asia.
DHL continues to have very strong volume and earnings growth and I'm sure they will talk about that when they provide their next call.
Quantas has talked about growth in their cargo business.
We operate a Trans Pacific network for Quantas from the US into Australia, north to China.
And then a Trans Pacific eastbound network for them.
Etihad has talked about growth in their business and their business and the networks we fly for them under ACMI certainly include <UNK> Kong and China.
And BST, who is a Chinese freight forwarder and for whom we operate a dash 8, while not publicly traded, is certainly growing and expects to continue to do so in this export-led economy.
Our charter growth in this third quarter, our third quarter charter growth, the military contribution was stable year-over-year.
So the growth in charter was commercial and that was predominantly Asia.
When we say Asia we mean <UNK> Kong and China for the most part.
I think we are very well positioned.
We are positioned with our ACMI customers.
Most of them are public and they talk about what they are doing and how they are growing and how they are positioning.
And then of course our charter numbers are not exclusively in and out of <UNK> Kong and China, but largely because that's where the largest freight market is.
Sure, Nate.
I guess perhaps selfishly I just want to point out that not all debt is created equal.
In looking at our debt it is really, really low rate debt.
It is generally collateralized by a modern efficient aircraft tail.
I understand that we all as financial people are focused on these things.
I just want to point out our dash 8s are financed, all 10 of them have a combined rate of about 2.8%.
That's debt that you and I would take any day of the week.
We have continued to un-encumber our 747-400s with a big pay down.
We took on 2.25% debt to do that.
I think that's really a very smart transaction.
I stand behind that.
I realize it is a little selfish and biased, but not all debt is created the same.
We have continued to lower our net leverage ratio.
So for us it really depends on what makes sense for the business.
We will take on additional aircraft.
We will take on debt associated with additional aircraft when and if it makes sense for our business and when we think there is an appropriate business case to take on the additional aircraft.
We've been very fortunate that the financing markets really understand the strength and the quality of our business and our earnings and the credit that we are.
I think that shows through and all the recent financings that we have done.
We are comfortable with our leverage, and we look at it on a plane by plane basis.
We don't have a target.
We look at it on an acquisition by acquisition basis.
We look at the NPV and the IRR for a particular aircraft.
Will it be accretive to EPS.
Who is the customer.
Is it a good investment.
Does it contribute to our overall strategic goals.
Those are the kinds of things that we look at.
I know it is a long winded answer, but we don't have a sort of specific target.
Thank you.
We are definitely in peak season, <UNK>.
We talk a bit about yields leading up to where we are now earlier on the call.
Maybe you heard it or not, but when we strip out the fuel impact, the yields that we have been experiencing so far are equal to or better than last year.
That's Atlas, our charter business.
That's what we are talking about.
We expect that to continue through the balance of the peak for Atlas.
There is a peak.
We are certainly experiencing a peak.
Others may not or haven't felt it yet, but we are.
And net of fuel, we are seeing yields equal to or better.
There may be a little bit of tapering in December and that tapering on a year-over-year basis would only be a result of ---+ that's when the West Coast port stoppages first started to be felt and fuel was dropping and as a result of that, yields were a bit higher, I think.
Overall we are in peak and that's informed an earnings framework of slightly better than $1.50 that we've put out there.
Sorry, <UNK>.
I don't have it at my fingertips and someone else asked the same question.
The adjusted tax rate that we expect for the full year is about 28% for the full year.
I think on a quarter over quarter basis <UNK> you talked about a $0.20 per share benefit that we had in Titan last year.
That's part of that tax headwind.
That's a new dash 8 that delivered this morning from Boeing.
We said that we are putting it at the charter right now because very strong yields.
We will enjoy very strong yields on that dash 8 in charter and then next year we will put it into ACMI as we have all of the other nine aircraft.
The arbitrage here is to use it in charter right now.
<UNK>, in June we issued $224.5 million of convertible debt at 2.25%.
We used the vast majority of the proceeds of that issuance to pay down EETC debt.
We refinanced 8.1% debt with 2.25% debt, essentially.
I took <UNK> <UNK> earlier through that map.
I can take you through it later.
I don't want to take everyone's time on that.
I went through the puts and takes earlier with <UNK>.
That's okay.
I can do it with you later.
Thank you, <UNK>.
Hope you are feeling better.
Sure.
We will obviously talk more about 2016 during our next earnings call.
The types of things I think that will play into that, if you take a look at our free cash flow for the nine months this year it is up tremendously over the prior year.
It is 927 year to date versus 598 year to date this time last year.
So it is growing tremendously.
I think some of the things to think about as we go into 2016 and we will obviously talk more about it during our next call, Lunar New Year is a bit earlier next year, see what impact that has.
We have an additional dash 8 which we've talked about.
We're taking delivery of today and we will have a full year of enjoyment with that aircraft next year.
We are taking on two 767s that we will have both being dry leased as well as operating at CMI.
Those are additions for next year.
We have the lower financing costs that we've talked about.
We brought back a 747-400 during this year and so that will operate for a full year, next year.
We don't have the benefit of the West Coast port congestion in 2016, presumably.
And we had some Titan return conditions that we enjoyed this year that presumably we will not have next year.
And then maintenance, we will see how that plays out.
We're in the process now of determining what we think maintenance will look like next year.
And so we don't have a number on that yet.
Those are the types of things to think about as we head into next year.
When it comes to free cash flow we've been pretty pleased with what we're generating.
Absolutely.
Yes.
We completely agree with that, Steve.
We're taking the test.
We're really excited to have it.
The aircraft are performing very well for us which means they're performing very well for our customers.
Even in a period of much lower fuel cost, frankly, that really tees up the dash 8 very well for our customers.
We believe we have growth in our ACMI business and that means growth with the 747-400 pure factory freighters.
Over time, if we continue, and as we would continue to take on more dash 8s there's an inflection point where we would begin to move 400s out of the fleet.
It's not one for one.
It's not always an additional add.
There's flexibility with the EETCs or the convertible debt and the retirement of these EETCs greatly enhances our ability to do that where and when it makes sense.
And then, just another aspect of fleet flexibility that we didn't talk about, I think there was some concern when we brought back one of our BCFs from parking.
And then we shed another BCF but brought one back at the same time under much more flexible terms.
Those have been a key part of driving the results that we've had in our charter segment.
BCFs go in the charter, they're very flexible, we could park if we need to.
We can return if we want to.
But that's been a key part about having that capacity available to us in this past quarter, the third, this current quarter, the third.
We'll manage.
That's some real flex in our fleet as well.
There's short term flex and these two BCFs which are very good for charter.
And then the mid-term flex around the 400s now that we've addressed the EETC overhang, if we want to call it that.
And it gives us better options to think about the fleet going forward.
Thank you, Carol.
<UNK> and I would like to thank all of you who are on the call today for your interest in our Company and for your questions.
We very much appreciate your sharing time with us today and we look forward to speaking with you again soon.
Thanks.
