Global Crossing Airlines Group Inc.
Q3 2021 Earnings Call Transcript

Published: 30 Nov 2021

[Operator:]

All right, good afternoon. Good morning, depending on where you are. Thank you for joining us for this Management Update with Ed Wegel, the CEO and Ryan Goepel, the CFO of Global Crossing Airlines. It's been a few months since the last update, and a significant amount has been accomplished. And with that, I'll turn it over to Ed and it'll be very, very clear to everybody, where you've come from, and where you're going in a very short period of time.

[Ed Wegel:]

Thanks, Grant. And thanks for everyone attending this webinar today. Good afternoon. Good morning, as Grant said. As mentioned, we purposely have not held any webinars over the past few months, we wanted to get through third quarter, which saw us go into revenue operations, had some aircraft, and get our operation settled down and get us into a pattern. We've tried to keep everyone as informed as possible through the last few months, as you know, with press releases and social media. That's not as effective though, as these investor webinars. And so we will start doing these on a regular basis again, now that we're deep into our ramp up period, and our operations are ongoing. We thank you for listening in today. And as Grant mentioned, we've made a tremendous amount of progress. Since we completed our 121 Flag Certification in August, which was about four months ago. That seems like a lot longer given everything that's gone on. But it was - it was a mere four months. So we got through quarter three. And we've been through most of the quarter four now. So there's a lot that we need to discuss, and show where we've made progress on our ramp up period. And we're going to take you through that progress today in a number of areas. We're going to go through strategic goals and objectives for this quarter. And next quarter, we're going to walk through our operations in terms of our fleet management and our basis, going to as much as we can talk about revenue, where that's coming from and how we are growing that, some finance initiatives and then a summary. But first I want to talk about where we are today because I think that's quite important and quite impressive, given where we came from and where we have been since certification. So where we are today, in terms of our certifications and permits, we are 121 domestic flag and supplemental carrier for DLT international authority. And over the last few months, we have worked with the governments in Canada, Mexico and Brazil, and now have full operating permits to be able to operate into those countries, which is quite significant for us. For Canada because of our relationship with Canada Jetlines into Mexico and Brazil because those are big markets for charters and other clients who need to get to those locations. Our aircraft fleet as of today, three aircraft on our operating certificate two A320S, one A321. Three aircraft will be added to the certificate in Q4, in fact, one airplane in A320 will be added later today or early tomorrow. The second of the three aircraft will be added to the certificate later this week. And a third aircraft, another A320 should be delivered to us out of paint in a few weeks and will be added to the certificate by mid December. We also have one aircraft slated now for delivery by March 1st of next year. We were originally going to take delivery of that airplane late in December. It was like coming out of the former operator Alaska Airlines and so we push that two months, but that actually works well within our operating plan. We also have three air cargo aircraft now under firm lease agreements that will be delivered out of conversion. All of these A320s next year, August October and December and we are working to try to get at least one more cargo aircraft delivered in 2022. So let's take a look at the fleet. We often talk about, about these aircraft, it is inanimate objects, they’re actually real. And they're big, they're expensive. And we have a great operating team that can operate these airplanes. And 276 was our first airplane delivered in January of this year 11 months ago. That airplane is doing heavy service now for the US government, and for some of our clients in the southeast, and 277 our 8321 was delivered in March - March of this year. We used it in Afghanistan along with 276. It was placed on the certificate after it returned from Afghanistan. But we went through the certification process and the evacuation demos, that airplane is now doing heavy service into Cuba and into the Caribbean. A lot of calls for it because of its size and number of seats and its cargo capacity. And we are actually looking for another A321 passenger airplane for delivery next year because of the passenger and client demand for this airplane. 278 GX is here in Miami. It is the aircraft that will be placed on the certificate later today. It has been conformed, we're waiting for some final paperwork from the FAA. 279GX was delivered earlier this quarter. It comes from Avalon, the big leasing company. That airplane has got a great interior and it's very popular among some of our clients. And it's out doing a lot of heavy work right now for the government, as well as a number of football teams and other clients in the collegiate sports area. As well we have 281 and 282GX, 282GX is now out of paint. It will be flown to Miami tomorrow. It will take a few days for it to be put on the certificate. But it is already booked for charters starting next week. So we're looking forward to bringing that airplane here tomorrow or no later than Thursday. 281GX has just been delivered to the paint facility, 282 GX was pulled out to anyone pulled out, 281 pulled in and is now being painted. So that will be delivered to us in 10 to 12 days after it goes through the paint process. 280GX will be delivered to us as I said March 1 of 2022, and 283 we're looking at a delivery sometime in April or May of 2022. So that will bring us to eight aircraft 183 21, 783 20s by the summer of 2022. And that is as fast as we can grow. We have to train crews, we have to get authority from the DOT, we have to ensure that our infrastructure in terms of people and assets is in place here at the company for the FAA to approve our expansion. We don't see any issues with that. But that does take time. And it does take some work for us to get ready for these additional aircraft. As well, we have three cargo aircraft as I as mentioned 3A21 freighters coming to us in actually August and September of 2022 and one by November or December of 2022. All depends on the amount of conversion time required to convert those airplanes to freighter. We have a total of nine now under firm lease or LOIs. For the fleet we are about to get two more subject to board approval. We continue to work to tie up A321 freighters which we know will be a very hot commodity in the cargo market in the years to come. Our operating bases, we continue to expand those - Miami now is fully operational. And we have global x ground team, our wholly owned subsidiary ground handling our flights here in Miami for Santa Domingo, Cuba and other flights that we have departing from Miami. ACy, Atlantic City, New Jersey is now fully functioning flight attendant base. Our second flight attendant class for Atlantic City is actually here in Miami doing their final week of training they will graduate early next week. We are already looking at positioning an aircraft there in Atlantic City, given the number of charters and the demand that we see out of the Northeast. The Las Vegas space plan for opening January 1st, or first flight attending class will start in Las Vegas in the next few days. They'll graduate just before Christmas. We'll then have a second class starting in Las Vegas soon thereafter. We've got a base supervisor, we're starting to ramp up for operations there. We've already gotten requests for charters, from some major clients with airplanes operating out of Las Vegas starting in the first quarter. So we're very, very pleased with the development of those bases. And I'll talk about why we have done that in a moment. Our Fort Lauderdale major maintenance complex plan and finance for May 2023 opening. If that continues, we have the financing in place for that. We're working on the designs and the engineering studies for that. And we want to push ahead with that in early 2022. But that will give us a maintenance complex where we can do work up to see checks and give us a home for our maintenance providers, which is extremely important for us as we move forward and expand the size of our fleet. Team members now in the headquarters 42 members, pilots are 33. We will have - we have two classes starting. So we will be up in the mid to high 40s in the next month, 72 flight attendants amongst the three bases and a maintenance team of 26. This staffing is required for us both with the FAA and DOT to show that we have the infrastructure in place to operate up to eight aircraft. So we have taken the decision to put those team members in place, get them trained, get them acclimated, and get ready for the airplanes as they get delivered. So we're well along the path in ensuring that we have the infrastructure in place for the airplanes that we have coming. As well as it as you know, we spun off Canada jet lines earlier this year. Global X maintains a minority stake of 25% of jet lines worth today approximately 5 million. We will do cross marketing between Canada jet lines and Global X. And in fact, we will start flying for Canada jet lines in advance of them receiving their certificate to take advantage of the Canadian winter traffic to South Florida starting in February, mid February for a period of six to eight weeks. This will allow Canada jet lines to get their name out into the Canadian market, gets us some extra utilization on some aircraft and starts the complete alliance between the two airlines As well, and I just mentioned global x ground team 100% owned by Global X. In partnership with global aviation services, which provides our ground support equipment, this will continue to grow over time. With global - with ground team handling other airlines as well as Global X. We now have established operations for ground team handling Global X both Miami and Tampa. And we're looking at expanding ground team now with some external financing to other locations around the US both where Global X will fly. As well as where we will not fly. So we see this as a major revenue opportunity for us to have a ground handling operation that is somewhat independent of Global X that provides all of our ground handling. And we'll handle other airlines. As well, and you may have seen our press release from today. Fluey has is now up and running. We've just signed a major partnership deal with Soho House major leading global hospitality brand. And we believe that fluvey will be a source for demand for charters that will be flown by Global X both for Soho House which could be as many as 10 to 15 to 30 charters a year, as well as other clients in that space. And as well what fluvey does, which is to create a crowd source demand for charter travel, We will be looking to bring in outside investors now that we have proven the concept. And this will be a major asset for the company, as we move forward. Let me talk a little bit about our goals and objectives. For this quarter, we're in the midst of completing a very extensive budget process for 2022. We set our cost reduction goals now as we are up and running. And we are approaching some scale with up to six aircraft operating. So we are reducing consultants and other outside advisors. We are trimming where we can, we're getting the airline ready to fly. We've also established a quarterly review process and that will be ongoing through the year. Also in the Q4, as I previously stated we will receive conformant place to be a 320s on to our certificate. That will actually be done by December 15. First two airplanes of the three, as I mentioned will be done within the next few days. We're also working to finish the complete IT integration across the company to eliminate all the paper. We're about 90% of the way there we're going to finish this in Q4. Everything in this company is now digitized. We've got a few final tests that we have to automate, but that'll be done by the end of this quarter. We're also redoing every vendor maintenance it crew training all across the company now and we're starting to renegotiate with vendors as they say that we are viable, we have - we have cash in the bank, we have airplanes, and we are a survivor. So now we can go back to each one of those vendors and start to renegotiate, and cut costs where we can. We're continuing to expand our broker outreach, the charter broker community and all of our relationships. We had a very successful IMAX conference in Las Vegas, and I'll talk about brokers in a moment when we get to some of our revenue slides. We're also preparing to receive a smart links aircraft to supplement our winter flying. This is part of our alliance with SmartLynx. As with SmartLynx has been a great partner of ours, they own about 8% of Global X, we need one of their aircraft to supplement our flying. And this is the start of an eight year exchange process with SmartLynx where we will send airplanes to them in the summer. And they will send airplanes to us in the winter. It's very counter cyclical between the two airlines. And it's a very comprehensive, cohesive plan we have with them to exchange aircraft. And we're in the midst of completing our first employee performance review. Many of our managers have never been through this. We're teaching them how to do it, we're mentoring them. And we're putting in place a full performance review for all of our team members. In the first quarter of 2022, we have a number of objectives. One of the primary ones is an uplift to NASDAQ, which Ryan will speak about in a few moments. On the passenger side, we want to make sure we have a seamless operation, with SmartLynx to develop and enhance our eight year deal. We want to fully open our crew bases in Atlantic City in Las Vegas, and have both pilots and flight attendants headquartered or domiciled in those bases. And we will take delivery of another April 20 as I mentioned around March 1 from DAE, a major lessor who provided us our first aircraft. On the cargo side, we will oversee the induction of two of the first A321s for conversion. In January, the first one it will be can start - its conversion at Heiko major engineering firm. And the second one will start in February in San Antonio, Texas with ST Engineering, we're looking we're looking very forward to seeing those two airplanes start the conversion process. \ We will also start the certification process with the FAA. And we have now targeted with them, and their team that's been assigned to us to do this with our first submission of manuals, honor about the mid part of January. That's our target date to get our first submission. And this is so that we will be ready through the process for the first aircraft, first freighter to be delivered to us in August, folks so we can start the proving runs with that airplane. Let me talk a little bit about why we have three bases and why we put them where we put them. One of the one of the advantages of having several bases is that we can more effectively compete for charter, activity of charter quotes, charter proposals and actual charters. If we can have airplanes spread throughout the US at bases where we can limit the amount of ferry time required to get to a client. So we of course started in Miami with our main base, we have now opened up Atlantic City, where we can quickly and efficiently move aircraft to charters in the Northeast and Midwest. And now we're opening Las Vegas, where we can effectively compete for California West Coast charters, all up through the ski areas and so forth. So if you draw a three hour range, circle from each of those bases, you can see that we cover all of the Americas down to northern part of South America. But we can efficiently move aircraft and have aircraft available for charter clients within a very short ferry time period, which is critical for us as we compete for charters. We've talked about our alliance, both with Canada jet lines, and with SmartLynx’s. We call this our global presence, local focus campaign with the three tails with SmartLynx’s, as I mentioned, we will receive an aircraft from Smart Links early next year that they will operate for us on some routes that we have already determined with clients. They will also provide backup aircraft for us so that - so that we can more tightly schedule our own fleet. We will also provide A320s to SmartLynx starting next summer, and we're cooperating on A321 freighters, so we are exchanging information and data SmartLynx is educating us on their operation of the A321 freighter Today they are currently operating to and they will get to more freighters very soon. So that cooperation is very helpful to us, particularly as we negotiated our deals on the freighters. Their input and their advice was critical for us to get very, very efficient deals done with the lead source. Our jet lines Alliance also very, very important to us, we own a major stake in Canada jet lines, we will start flying a Toronto, Miami Toronto Fort Lauderdale pattern for them, starting in hopefully February, maybe a little later in February. But this will give them eight weeks of exposure with their name and brand in the market and get us additional flying. We're also providing technical assistance to them for their aircraft acquisitions. And we're helping them - they're working with our client have added air to potentially launch Toronto to Cuba flights with their own aircraft. So that both of these alliances are very, very important to us. It broadens our scope in our presence. And we're now talking to several smaller South American Airlines in an effort to expand this alliance to include aircraft that we can access in the South American market. We've also strengthened the management team through the quarter. It's our intent to continue to supplement and augment our management team as our operation gets larger and more complex. Jeff Sunic has joined us he works for Ryan Goepeland finance shop. Jeff comes to us after many years at Atlas Air, Atlas is one of our comps, an airline that we frankly look up to and we look to see how they operate. They operate wide body aircraft, but they are very much in the operating mode that we are in. And so we've learned a lot through Jeff on our finance systems and how we do accounting for charters and other areas of our business. And so he is leading the current budgeting process and the quarterly review processes. And as well working with our sales and marketing team, as they develop charter contracts to make sure that we are covering everything we should be covering in our contracts as Alistair does. Marcus Schleich has joined us as VP of Maintenance. And one of our one nineteen's, the gentleman who had occupied that position is now retired. He got us very successfully through the certification. We were sorry to see him go but he did a great service for us. We were able to replace him with Marcus who spent tremendous experience with a number of airlines including Atlas, including a number of airlines that operate the A320 comes very highly recommended from the FAA, they are very happy to see him here with us, as well as Kevin Beitzel, who joined us as our chief inspector. Kevin has many years of inspection experience, which is critical in this role, heavy maintenance inspection experience at MROs, both inducting aircraft into a fleet as well as returning aircraft to less oars. Kevin comes to us from Frontier, which operates the A320. He knows the A320 inside and out and is a tremendous asset to our team, as well as we expand our operations in our stations and our ground ops and also in flight we're bringing in Durin de Pastino She has extensive experience having been on the startup teams at Virgin America, JetBlue and breeze recently where she ran station operations as well as in flight. She's also had a major VP roles at some major airlines and putting Emirates and to Lyon. And so we are very fortunate to have come on board with us to help strengthen our ground ops team and help on the in flight side of our operations. As we look at our fleet plan, we're often asked how many airplanes do you think you can get to as part of our goals and objective, we are looking now at 25 passenger aircraft 25 cargo or freighter aircraft by the year end 2025, so 50 aircraft total. We are on path to do that. We are continuing to see good deals for aircraft. As a result of the pandemic, we're moving fast to line up those aircraft because that situation will eventually change. But we are focused on the 320, the 321. Again COVID has created a unique opportunity for us to line up these aircraft. And we're working very hard to line up the 2022 fleet as well as 2023. 2022, we would like to take as many as five additional passenger aircraft in addition to the three freighter aircraft that we will take. If we can take more aircraft, we will, because the deals are there, the aircraft are there, we have to make sure that we've got the clients to fill those airplanes and that we've got the infrastructure in place here in terms of pilot recruitment, and other infrastructure that we need to support that growth. But this is our goal 50 aircraft by the year end 2025, we bought the 2525 25 plan. And we think it's realistic, and it gives us the opportunistic growth that we need. A couple of other initiatives, these are still in board review, as well as some other initiatives. But these give you an example of the types of things we are looking at now to continue to reduce our costs and increase our margins. We're looking to purchase our own flight training device, a level five device that we will place in the Airbus facility here in Miami/ It does a number of things for us, it saves us money in terms of crew time, we can operate the level five sim for about 40% of the hours that we now use the full flight simulator for it also gives us and probably more importantly flexibility in scheduling. So this device, obviously we would own it, and the scheduling of that device is completely in our control. Right now. We are a bit at the mercy of the training facilities here in Miami, and their ability to provide a simulator time. We want to move away from that as much as we can and control our own destiny when it comes to training. As Well. We're working with GA Telesis which is a major MRO facility with worldwide operations. We're very close to their management, they have been very supportive of us. We are now working on a on a plan to buy some airframe, A320 airframes, that can be torn down their parts and components put on the shelf, in some cases, they may need to be repaired. But given the cost of airframes, we think that there's a big arbitrage between what we can buy for and what we can put on the shelf. And what we could eventually sell some of these parts, those parts that we don't need. And so it's an it's really a cash neutral type of situation, particularly since GA Telesis will finance the entire the entire deal from acquisition of the aircraft frame, to stripping it down, repairing components, and doing all the other activities around that. So we're starting now to look at creative ways for us to reduce our costs, increase the control of our operation by having our own parts our own main base kits here at NIA as well as our own flight training devices so that we can control our own destiny when it comes to flight training. Turning over to Ryan now take us through the next slides.

[Ryan Goepel:]

Right in reference to our block hours available for sale, our primary constraints that relates to revenue does relate to how many aircraft we have to sell. As you can see in August, September, we effectively had one aircraft in August and 1.9 aircraft available September, as we disclosed we did around 370 hours of flying, In Q3 with those with those – with that aircraft, generating about $3.1 million in revenue. We did highlight in the Q3 results a loss of 5 million but over 60% of that can be attributed to before we started flying and also related to the ramp up as we are adding planes in Q3 and Q4. Looking forward to Q4 as we mentioned in our press release, we will see a approximately total 70% increase in our capacity for flying, which again is been our primary constraint as it relates to revenue growth. And we see that growing not only in Q3 and Q4 but also in Q1. I'll now turn it over to Ed to discuss some of the customers

[Ed Wegel:]

I’ll talk you through of this , it's important for you to understand the breadth and depth of the clients that we are flying. We have a large portfolio now of collegiate sports clients that we are flying both for football and now into basketball and baseball. And In fact we have one whole aircraft that will be dedicated with Wi-Fi to that market starting in January of this year. On the tour and travel side, we've talked about our Havana operation, our Cuba operation with Havana Air which is the largest OFAC approved tour operator in the US, currently operating 10 flights for them. We started with eight, we're now at 10. By mid December we should be at 12 to 14 flights per week. And in January in February that should ramp up even more so. We're only flying to Havana right now from Miami and Tampa, as the other cities in Cuba open up. Those include Camaguey, Santa Clara, Santiago and so forth. We will fly those for Havana Air and we expect to eventually get to as many as 44 flights per week from Miami and Tampa and perhaps one or two other US gateway cities to Cuba, 44 flights per week to the to Cuba, the main cities in Cuba. We’re also flying in a joint venture with Terpineol airlines to serve the Venezuelan market over at Santa Domingo. And we started a major program with Agua Caliente Casino operator on the West Coast. As we put more – put one airplane and then a second airplane into Las Vegas, that particular joint venture will expand. We also are in discussions with all of the casino operators, not only in Las Vegas, but Atlantic City and Mississippi and so forth. And we expect we will get a fairly good amount of business out of all of the casinos. And that portfolio will build - will build over time. The government side,. we have done a number of flights for NASA, going into French Guiana where they are preparing to launch what will be the replacement for the Hubble telescope. We're flying another flight for them in the next week or so. And we see that relationship with NASA expanding over time. They're very good client. And we perform very, very well for them. And as well we work with the Department of Homeland Security, to provide them aircraft and seats that they need for their various activities. I mentioned the broker community which is very, very important to the air charter or charter airline side of the business. We work with all of the major ones now, ACC, their charter service Chapman freeborn, which is a subsidiary or affiliate of SmartLynx and their conglomerate, air charter service, Hunton Palmer private jet services, which were now in the midst of negotiating a major expanded contract with them, sports and entertainment, travel, and some others. So they've been a source of a great deal of business for us. They provide a lot of potential deal flow for us, we perform well for them. And we will continue to expand our relationship with all of them, as we move forward. Mentioned Havana Air, very, very important customer client of ours. As I said, we operate a 6 AM departure every morning for them to Havana from Miami. And we'll continue to build that relationship with additional flights. And again, we expect to get to as many as many as 44 flights per week with them by summer of 2022. We talked a little bit about we think that this is a prime example of the marketing creativity we have here at Global X to expand what is the natural charter market so that we bring in more clients and more opportunities for flying. So fluygy was presented to us as a concept. We grabbed on to it, we expanded it, we put some development hours into their software. We then working with some local marketing experts, were able to get a deal done with Soho House, which is a major, worldwide luxury brand. And so with Soho House, we'll be doing the first flight in January major promotion with Soho House of Global X n and Flugy at our Basel, and for a number of events between now and the first flight. And we see this relationship expanding such that we'll do a number of charters for Soho House through the year to all of their other properties. And as well, this will attract more clients such as Soho House to Fluegy and we're now looking to bring in external capital to now grow and expand Fluegy with his proof of concept. So this is example of how we're looking outside the box to expand the potential market for our charter aircraft into new markets with new partners and Co-branding with well established travel brands that adds to our credibility as we as we move this airline forward.’ Talk a little bit about the cargo business. Again, this is a major piece of our business going forward. It gives us diversity of revenue streams. And because our pilots can operate both types of airplanes and A320 passenger airplane or A321 fighter aircraft, it gives us a great, great amount of flexibility. It allows us to deploy our assets or human assets over all of our fixed assets, which is a major advantage for us as we look to reduce costs. So as I mentioned before, our certification will start in January, we hope and expect to be flying proving runs by late August or September, and then into major contract with some of the one or more of the large package carriers sometime late in 2022. Again, we expect and hope to get to 25 of these aircraft. It is it is a phenomenal aircraft. It stacks up very well against its competition. And we've seen Lufthansa recently decide to go with a free 21 freighter as one of their fleet standards. And so we know we've made the right decision focusing our efforts on this particular cargo aircraft. I’ll ask Ryan to talk about our S1 process.’

[Ryan Goepel:]

So our S1 process which has been going on for the greater part of the year, we filed the public version of the S1 on November 22, including Q3 financial statements and an updated business section. This is our seventh version of the filing. Many people have asked why are we filing an S1` what is this? What is a registration statement? Global Crossing is when we domesticated from BC to Delaware in January this year, became required under SEC regulations to file a registration statement. This registration statement we believe will accelerate any additional escalations we want to do as part of an uplifting in the next year. This also has the impact of registering all the shares issued and offerings in June or January and May of 2021. So in the end is what this S1 we believe does, it brings us greater access to US capital markets. It's required by the SEC, and also was required by Canadian regulators to allow us to file and just GAAP versus having to file financial statements in both GAAP and IFRS. So it's a key step as part of our evolution. And we hope to have that done in the next couple of weeks.

[Ed Wegel:]

And I think the most important point there is this will help us facilitate to an upwards to NASDAQ. It's required by regulations. And we are we are fully reporting company and we should be in full compliance with SEC regulations. This S1 one does that. It's an excellent - excellently drafted statement. And we will get great use of this going forward. And it gives our vendors our aircraft less soars