Cargojet Inc. (CJT) Earnings Call Transcript & Summary

Good day, and welcome to the Special Cargojet Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Pauline Dhillon. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us on this very special call today. With me is the executive team of Cargojet. Prior to Ajay's opening remarks, I would like to point out that certain statements made on the call, such as those relating to our forecasted revenues, costs and strategic plans, are forward-looking and within the meaning of applicable securities laws. This call also includes references to non-GAAP measures, like adjusted EBITDA and adjusted EBITDAR. Please refer to our press release for any other questions you may have. I would like to turn the call over to Ajay Virmani for his opening remarks.

Good morning, everybody, and thank you for joining at a very short notice for the special investor and conference call today. Yesterday, we signed a very strategic partnership agreements with DHL Group that builds upon the strong commercial relationship we have enjoyed with DHL for over several years. Before we continue with the conference call, at this point, I have a very special guest that I would like to introduce to all of you. Our special guest is Mr. Mike Parra. He is the Chairman -- sorry, he's the CEO of Americas for DHL Group. He has joined us kindly for a few minutes to give us all a color of the deal that we just executed. Mr. Parra, are you there?

Yes. Good morning, Mr. Virmani, and good morning to all the guests that are on the line. What an incredible day, not only for Deutsche Post DHL and DHL Express, but we assume the same feeling with our friends at Cargojet in Canada. This relationship, for those on the line, extends beyond the last 14 to 15 years, starting in Canada and now truly becoming a global relationship with Cargojet. Deutsche Post DHL has over 570,000 employees globally within the DHL Express division, which is the division today that has made the announcement with Cargojet. We are 120,000 employees strong. We are in 220 countries and territories globally. And we are recognized as the #1 great place to work for all. I think it's important to know that DHL is the global leader in cross-border, time-definite international as well as air cargo movement. We have a ground presence in over 220 countries, as I said, holding a #1 position globally in our space in Asia, Europe and outside the United States, a #1 position overall in the Americas. We've seen an incredible demand and robust growth in our services over the last 24 to 36 months. But even if I look back to the last 7 years now that I've been in the role as CEO for the Americas region, which is Canada, all the way down to Argentina, or if you're from Chile, I would say, Canada to Chile, we've added over 14,700 new roles in the last 6 years, to be exact, and have increased our overall revenue spend, which, as a result, positioned us nicely to continue to grow what we see as a strong relationship that we have enjoyed with Cargojet. When you think about the pandemic, and you go back to February and March of 2020, there was millions of pounds of belly capacity that suddenly disappeared. And like everybody else, we had to work hard to find solutions to meet those requirements. And what further complicated the matters was obviously a skyrocket in e-commerce demand. And at the same exact time, while we were trying to move pandemic-related materials and equally starting a surge and a partnership with the partners around moving vaccines around the world. Any time you pick up the phone and you call the friends at Cargojet, they're ready, they're willing, they're able to support us with additional assets and aircraft, with many other airlines simply not having the capacity at that time to scale up as fast as that. So we're very thankful for the relationship that we have with Cargojet, their philosophy of always having aircraft feedstock in the pipeline that allowed us and allowed them to support us during a difficult time. Another part of why it's important this relationship is they have a leading industry on-time performance, and they win hands down against any of the other players that we've experienced in the Canadian market. The partner, when we start talking about long-term strategic partnerships, a partner comes through during the most challenging times, and I just spoke about that through the relationship with Cargojet. And they are a true partner. Their philosophy of customer first, the fact that they're obsessed about it is something that we see as a company, as something that matches with our DNA of being insanely customer-centric. And we couldn't have asked for a better partner. They bring a strong balance sheet, a deep appetite to invest in growth, a well-managed business, an industry best operational team that knows how to execute. And like us, they believe in a focused approach. We generally like to partner with airlines that are focused on air cargo as their core business, not as a nice to have or as a hobby, but something that is at their core. So we have continued plans to build on this relationship. And as such, we're extremely proud of today's announcement, and we look forward to this continued growth with Cargojet as well as their passion for being obsessed around customer first. So thank you very much, Ajay, to you and your team. Great day for all of us, and look forward to seeing you in person so that we can celebrate.

Thank you, Mike. Really appreciate your comments, and we feel the same way about DHL. It's a true partnership at every step, and we sincerely appreciate your trust and support in Cargojet and its teams and its abilities to provide you with aircraft-s and all the services that are related to the contract we did in this agreement. So thank you, Mike, for joining us. It means a lot. I will now continue on with rest of my remarks. This is by far our largest transaction up to today, with revenues of $2.3 billion over 7 years. We felt that the transaction of the size needed to have strong alignment of interest, and the warrant structure allows us to achieve that goal. We have provided more details in our press release. A significant portion of the revenue is incremental to the current run rate revenue of DHL. This agreement also accomplished our goal of longer-term ACMI contract with the major customers. Typically, ACMI contracts with all customers are not to the level of 5 years, with 2-year options. They are much smaller and shorter. Given a detailed explanation of the transaction in our press release, I'm not going to repeat that information, but let me highlight a few key points. Although, we have opportunistically participated in the ACMI international market, we wanted to wait for the right conditions to make a long-term strategic move in the space. We believe those right circumstances have now arisen due to major global structural shifts. Let me highlight a few key points. During the past 2 years, we have been -- we have seen a massive digital adaptation of retailers, and a vast majority of new businesses are starting purely as e-commerce online businesses. This is not just a Canadian trend, rather a global trend. DHL is a key player in a cross-border e-commerce. Number two, global supply chains are going through a massive restructuring as countries rethink their national security interest. This dislocation will lead to manufacturing sites moving across the world, and new origin destination fairs will be created, and they are already being created. These fairs may not complement the international leisure travel cities of the future. Number three, structural shifts in retail, real estate have led to repurposing of several shopping malls shutting down thousands of bricks-and-mortar retail stores. And we do not expect those stores to return anytime soon. Number four, belly capacity will remain uncertain due to unpredictability of the return of the international travel. This has also forced global couriers, such as DHL, to secure long-term capacity on dedicated aircrafts to maintain high predictability and service quality in their networks. Number five, many airlines are retiring fuel-efficient 747 and A380s, creating a permanent shift and available belly capacity. Many airlines are also replacing wide-body, long-haul aircraft with more fuel-efficient B737 MAX and A320 Neos for their use, rather than relying on the old traditional 777s or A330s. These 777 converted cargo aircraft is emerging as the aircraft of choice due to its better fuel economy, payload and longer reach as a replacement to older B747, A380 workhorses. We are also thrilled to have secured the feedstock of early conversion slots for the highly sought-after plane. Together, these changes presented an attractive entry point for Cargojet to build a stronger ACMI and international footprint. We are thrilled that we are embarking on this journey with the DHL Group, the global leader of international cargo movement. We are fortunate to have been selected as a strategic partner by DHL as it expands its global reach and adds capacity to its key names. It is worth noting that as a sophisticated operator, DHL had many choices to select among Canadian and other global airlines to partner with. Their decision to pick Cargojet to be the long-term partner is a major endorsement of Cargojet's track record, strategy and, above all, our great team. We couldn't be happier. We have a strong track record of investing in the business that is supported by strong customer opportunities. As we recently disclosed with our fourth quarter results, we have increased our CapEx spending in 2022 due to these structural shifts in the global air cargo industry. This major customer win with DHL supports a significant portion of the CapEx we announced, and had we not got into acquiring the planes and the CapEx we announced, we would today not have the DHL agreement. The process that naturally leads to transaction of this size does not always perfectly line up with how and when we need to make commitments for CapEx, but that is a reflection of the strength of our customer relationships that brings the small steps and lead to strategic partnerships. We are also working on plans for international network development to select high-yield destinations with a similar block space agreement, as we have accomplished in the domestic market. We will certainly be announcing more of these plans and contracts as they get finalized in the very near future. We have an equally strong track record in executing our strategies with industry best online time -- on-time performance and high customer satisfaction. With DHL, we believe we have strong cultural alignment and is best described by Travis Cobb, our Executive VP of DHL Global Network and Operations and Aviations. He says and let me quote, "Cargojet's customer-first culture has added flexibility and resilience to our network." And this core is a great tribute to the entire team of Cargojet that has worked extremely hard, particularly during the pandemic and never missed the beat, despite all the challenges that were thrown our way. I want to use this opportunity to thank each one of the Cargojet team members and our current and future customers for their support and confidence in our abilities and services. Thank you for trusting with your business to Cargojet. We are also in the process of further strengthening our domestic network that will create more direct cargo flight connections from Canadian cities than anyone else. When we are finished deploying our -- or sorry, 757 domestic strategy, we will be servicing 8 direct flights a day from our major hub of Hamilton and Montreal to each of those 8 major cities in Canada. We are committed to maintaining our leadership in the Canadian domestic market and grow selectively in ACMI charters and international businesses. We also are in the process of planning our first Investor Day in the coming months, and we'll be sharing more details for this event for all of you guys to visit our Hamilton hub, along with presentation of overall strategy that Cargojet contemplates in the very near future. I thank you again for your patience, your support and joining us this morning, and let me open up the call for questions. And my management team is with me for all questions you might have.

[Operator Instructions] We will now take our first question from Konark Gupta from Scotiabank.

Congrats on the announcement, Ajay and the team. I had a few questions, maybe first clarification before. The new agreement seems like it is including the existing 12 ACMI rounds. Is that correct?

Yes, it does. However, the majority of the revenues we discussed and contemplate are incremental.

Right, right. Makes sense. So the $2.3 billion, Ajay, it's including the existing contracts plus the growth that you anticipate with DHL?

The growth that we have agreed on or signed on is, yes, and majority of that is new and incremental.

Makes sense. So my first question mainly is on in terms of the mix, when we model this contract out. Currently, I think DHL was primarily doing ACMI with you, so that was showing up in the ACMI revenue line. And going forward, as you have more CMI charter and dry lease in the mix, how does -- how do you plan to kind of report this contract revenues over time amongst those segments?

Look, the agreement that we have signed for 5 additional 767s and 777s are primarily ACMI, but they are also looking at expanding the relationship so that these are placeholders you might want to call it at best, is that they would be open to us taking dry lease aircraft from us, for example, or they would also be open to -- if they want to operate an aircraft that they already have and they want operations, they will also contact us for CMI. So this particularly doesn't mean that $2.3 billion is all CMI or dry lease. Those are provisions within the agreement that they would like to access all of our portfolio. So primarily, we see more of, I would say, 80% to 90% of this business as ACMI.

Makes sense, and that's really the thing. And then last one for me. On the warrants, so it says and the press release suggests, it's up to 9.5% of nondiluted shares. So that seems like it's 9.5% of [ 17.3 ] million shares, which accounts for -- or equates to about 1.65 million warrants. Is that correct? And why is there an up to in there? Like do you have to figure out the exact amount later on or you have 1.65 million warrants?

When we say up to, it could be depending on how the revenue matures. So they're all tied to the revenues at various levels, right? So when it says up to, that means it would not exceed. That's what that means. And secondly, if for example, if the revenue is $100 million less, then the warrants become less. So they're tied to revenue, that's what it means.

We will now take our next question from Michael Goldie from Bank of Montreal.

My first question is, does this announcement impact any future CapEx plan versus kind of the most recent guidance that we've discussed?

No. Actually, at that time, we could not announce. When we announced the CapEx plan, since our agreement was not finalized, we could not announce. Ideally, we should have announced both of them at the same time. But because of the disclosure rules, this CapEx plan was sort of in anticipation of this contract being signed. So we don't anticipate any more CapEx. This is actually at the high end for this particular transaction.

Okay. And then so you're receiving 8 777s in the coming years. How many is DHL taking for this agreement? And then of the 777s and 767s, which are owned by Cargojet? And then which could be owned by DHL and flown on a CMI basis?

No. So their -- all the aircraft that we contemplate in this agreement that we have mentioned are all owned by Cargojet. That's number one. We have 7 767s that are supposed to be taking delivery over the next 2 years. And out of that, 5 have been spoken for by the DHL people. And we will have 2 aircraft that we have highlighted in the previous 2 conference calls that will act as spares for our maintenance in hub spare and operational means. So all 767s are pretty well spoken for. As far as the 777s are concerned, we have an agreement initially to start out with 2 aircraft and another 2 aircraft the following year. So we're looking at up to 4 aircraft for DHL that we have committed. And there is 4 777s that would be in '24, '25 that we are working on with other retail customers to build domestic type block space agreement with certain international destinations, but that's still 2.5, 3 years away. So yes, half of 777s are spoken for with the DHL.

Okay. And then last question, if I may. Of the $2.3 billion, are you able to give us -- how much of that is incremental? Is it kind of around $1 billion?

We can -- all we can say is majority of the $2.3 billion will be incremental.

We will now take our next question from Kevin Chiang from CIBC.

Congrats on the announcement this morning. Maybe if I could ask another way in terms of how to think about the incremental revenue. It looks like 346,000 of the 1.645 million warrants exercised immediately, so about 20% of it, leaving 80% to be earned. Is that a good proxy for maybe, I guess, the low...

No, no.

No, it's not. Okay.

It isn't. There is 2% resting upfront in recognition of a partnership for 15 years in relationship. That's number one. Number two, in the past 2 years, the DHL has grown from 6 to 7 aircraft to 12. It's a recognition of that. And number three, it's a recognition of an agreement that is now 5 years firm with a 2-year option. So those are the 3 reasons that we did the immediate vesting for 2% as a token of our appreciation for how DHL has supported us and given us the opportunity. And the rest of it is for -- obviously, for growth. But I wouldn't say the revenue necessarily split. But Kevin and I can tell you that you know what's the majority of $2.3 billion, so I would look at that as incremental. Keep in mind, every month, we are adding aircraft. So while we started the deal doing, the base was a lot less and the incremental was a lot more. So there is not a month gone on where we haven't added the route. So by the time we started to do the figures on the next meeting, the incremental had shifted to existing. So -- but the key thing is that all the agreement now becomes a 5-year firm agreement with a 2-year option to extend, which is kind of unheard of in the ACMI markets.

Okay. And actually just a clarification. I guess all the individual ACMI contracts with DHL, it now falls under this -- is this like a master agreement now for all those agreements? Or are things extended now 5 years, plus a 2-year option?

Yes, absolutely. You're absolutely right.

Okay. That makes sense. And then you did mention, Ajay, you expect 80% to 90% of the revenue to be ACMI. But as you mentioned, they do want to tap into your broad portfolio here. Just wondering, is there -- I don't know, for lack of a better word, like a minimum split, i.e. they can't generate most of, let's say, the revenue that you anticipate doing dry leases versus your expectations of ACMI? Are there any provisions that kind of provide at least some goalpost around the potential split that they could choose? Or do they have...

No, no. And Kevin, let me explain you the dry lease and CMI strategy. These are our backup strategies. These are mostly for the benefit of Cargojet. Let's say, for example, the market softens, and we've got 2 aircraft that we can't utilize. I would immediately -- my first call would be to DHL and say if they could -- because they're a global company, they have 600 planes flying around, can you lease 2 of our dry lease aircraft? So it is kind of a built-in protection for us. And second thing is they might want -- might not want a dry lease, they might want to give us a route from, let's say, Singapore to Dubai, that we under Cargojet license cannot operate. But we can take that aircraft and give it to one of the local carriers to operate on a CMI basis. So those are sort of built-in protections for Cargojet to get rid of their excess capacity or excess aircraft in case the market softens. So the primary goal of this market is wherever Cargojet licenses are applicable and can operate, we plan to provide ACMI services.

Okay. And then just last one. I was trying to jot it down quickly. It sounds like a big focus on your Q4 call was the fleet investment. It does feel like the near-term 767 capacity is not going to be called on here with the DHL contract. And then looking for the 777s, it looks like you've gone through a lot of [indiscernible] a chunk of that to be put under this agreement. Is that kind of the right way to think about it? You've kind of absorbed a lot of this, I guess, perceived excess capacity you're putting onto the market when you initially laid out this fleet plan when you reported Q4 results?

Yes. Kevin, you are exactly right. We have 6 757s that we are investing in to improve the domestic service, like we talked about direct nonstops to 8 cities, so they will go there. It will free up another 3 767s from the domestic network, which would be primarily like we are trying for the dire need of backup and maintenance spares and operational spares. Those 3 767s freed up from domestic will go into that. And out of the 7 767s that we are getting new ones, 5 are going to DHL and 2 would be available for future growth and our other customers that have requests in. So pretty well, all 767s, all 757s have been spoken for, absorbed and accounted for. We have 4 777s in '24 and '25 that we are working on either a model that we will do some Far East and Asian flying, depending on what the market is. Or as a matter of fact, we have 3 customers who have expressed interest in already asking for CMI and dry lease type of operations. So we don't want to take those opportunities right now because we might be leaving a lot of money on the table. And I think we will certainly feel that we, as a company, need those 4 planes to grow our international brand. So rest, everything else is pretty well accounted for.

We will now take our next question from Chris Murray from ATB Capital Markets.

Congratulations on the agreement. Just a couple of other clarifications, if you don't mind. So first of all, one of the parts of the 757 into the domestic market, part of the idea was to free up some additional 767s. So just trying to get a rough idea, if that's still the case. And with those additional 767s that might get freed up, could they also be used in this agreement? I guess what I'm trying to understand is, is there room for growth open above the 5 aircraft that are already committed now?

Yes. So it will -- that strategy of deploying 6 757s and freeing up 3 767s still exists, and that's what the plan is. So this will free up -- so for example, if we free up 3 767s and we got 7 coming, so think that we will have a total of 10 767s. So out of the 10, we have previously announced we need 3 planes to support our 35, 40 plane operation for maintenance and spares. So out of 10 planes, 3 will definitely go into that direction, 5 will go into DHL, so that's 8 and 2 will be for our charters, our growth and other customers' peak. So those would be fully utilized as well. So we have full plan to use those, and we have -- so there is no spare 767s or 757s after our strategy is deployed.

Okay. No, that's fair. And then when we talked about this back in the quarter, I mean, the concern was there was a lot of capacity and what you're going to do. And certainly, the announcement today helps understand this. But should we still be thinking, at least at the time that we talked, there are a couple of things that came out of that. One was the return on this capital, you're expecting it to be in line with kind of the historical norms we started to see out of 2021. And the one commentary was that EBITDA margins on ACMI should be upward biasing overall corporate margins. Any thoughts around how we should be thinking about the financial impact of this new contract and the new activity?

So look, the new contract, because of the warrant calculation, was well researched, vetted and analyzed. And all I can tell you is that any margins that we pay a lot of attention and focus on the margin, I know there's a lot of cost pressures when you look -- read the news about inflation and wage rates and fuel prices. And so yes, there are pressures on the margin from outside. But as far as the pricing that we have done, it is totally in line with the current margins that we get.

Okay. That's helpful. And then my last question really quickly. This is your second warrant deal. You did an earlier agreement with Amazon. So I guess, the question that we've already had this morning, should we be expecting, I guess, a couple of things. One, are there any issues around -- or any interlocks around Amazon or this agreement, which requires consents for future agreements of this type? And then two, is this something that you think that, as we look at the renewal of some of the larger contracts in the next few years, that we may have to see additional warrants being issued?

Look, every deal is analyzed its own. We do not need -- we don't have any agreements and never enter into agreements where we need permission to move forward and do strategic deals. So our hands are not tied in any of that respect. Any future deals, our philosophy is that there has to be a significant portion of any revenues has to be growth and incremental for us to look at a warrant deal. It has to be accretive. It has to be an -- accretion has to be from day one. And obviously, our bankers give us the fairness opinion on these type of deals, depending on the margins and depending on the stock price and all that stuff. But this is not our -- we're not looking out to do these deals. But to be honest with you, this is the biggest deal, the company has done, about $2.3 billion deal, and majority of it, as I said, is incremental. So obviously, there is some reward for a 15-year loyalty. There is some reward for firming up the contract to 7 years, almost. And then the major reward comes in, in incremental. So I can assure you that any [ deal issues ] if you ever contemplate in the future of renewals, it has to have all those 3 elements.

We will now take our next question from Walter Spracklin from RBC Capital Markets.

Congrats on the deal. It's a good deal. I'm going to try to -- a lot of the positives have been flushed out here, so I'm going to try to think about some negatives that I might get here today and hear how you answer them. So bear with me for being devil's advocate. Is Mike still available to answer one of the questions actually? Is he still available, Ajay, or...

No. Mike had a meeting because he was doing his own investor calls, but he -- I mean if you have a question, I can...

Yes. No. I mean it was great to hear his comments. I think that was excellent having him on the call. But I mean, one of the questions I often get is belly capacity and when it all comes back. Are the DHLs of the world going to take advantage of perhaps that belly capacity? I know -- kind of like -- I've heard your answer to that. And presumably, that's coming from him as well. You wouldn't be thinking already -- but certainly, that's one of the key aspects. And I don't know if through your conversations, Ajay, with Michael, whether he's given you added color on DHL's plans, when belly capacity comes back, whether they plan on using that in any extent the way they did before? Or are they going to be more focused on dedicated freight aircraft, like what you provide?

Yes. So Walter, this has been a million-dollar question. I can't tell you what DHL is thinking internally, but I can tell you what the marketplace shares with me, and what this agreement means in terms of that. DHL also has signed 5 777s to be operated by Singapore Airlines, and these were all -- this is a longer-term agreement. And that's in Asia, that part of the world. And it is really, the way I see it, and the way I read it, that they are reducing their dependence on belly capacity a lot. Shifts have happened. DHL was also a big user of belly capacity, but I think what our feeling is that for them to enter into this agreement, they feel the shift is quite permanent. Unless certain things happen, then obviously, you don't know what the future holds, but you can only plan for what you know. And the way it looks like that the belly capacity, you never know when it will come back and when it will not come back and in what form it's coming back. So the trend is it's not coming back in the form it used to be, like no A380s, no 757s, right, 747s. So -- and a lot of 777s have been grounded. A lot of MAX -- 737 MAXs, like you could put Toronto or London in a 737 MAX now. So a lot of intra-Asia is going to be MAXs and A320s. So there's a lot of capacity that's going to come out of the market as a result, which will be a structural shift. The second part of it is that the way I look at DHL, they are now more competitive with their competitors because their competitors, like FedEx and UPS, use a lot of their own aircraft and dedicated service. And I think DHL has all of a sudden enjoyed a dedicated cargo service and being competitive. And they are growing -- as Mike said, they're growing crazy numbers. So it's also improving their service, and we feel that, yes, there is always a risk of some of that's going back to the belly business on a strategic basis, but majority of the shift, I think, has already happened. And hence, they will not sign a 5-year commitment on 12 planes and a contract for 777s from us and another 5 767s if they thought everything is going to go back to the belly.

I don't think they would have spent as much as they did on their facility in Hamilton. They would have put that in Pearson, right, I mean, if they really thought they were going to use belly space.

Exactly, you're 100% correct.

Yes. Second, I guess, devil's advocate question. One of the key concerns about your investment before was you didn't have a contract. Well, now you have a contract. The next question might be, well, are you too many eggs in the DHL basket, right, because a lot of your ACMI now is DHL? If I use the numbers that you gave me in terms of aircraft that's available now for other customers, let's say, I think you gave us 2 767s that are going to be available, that are not under this contract and 4 777s that will be available. Is that right? And if you could give us a revenue number, perhaps ballpark, that is still capacity available for other customers. Is that a fair -- which direction would you point us there? Or is that a good question? Is that a better question for your Investor Day?

Well, those are -- it's a better question for the Investor Day, to be honest with you, but you've got to understand that it doesn't mean there's no other aircraft. When we have 3 spare aircraft, they're not always being used as spare. They're going to be used for charters. Like I'll give you an example, people do our flight tracks and all that. They say, "How do you get so much utilization of these aircraft?" because we -- keep in mind, there are 18 aircraft domestically that sit from Friday to Monday, number one, that are being used for international charters, and they will be used. There's also daytime charters, like from 5:00 in the morning to 10:00 at night, we don't need those aircraft, and we have used those aircraft very effectively for charters. So it doesn't mean that they're marked domestically. They can't be used because we have a spare aircraft and if the charter is returning at 1:00 in the morning, and domestic flight has to leave at 12:00, we fire up the spare at that time. So the network flexibility of various sizes of planes at various times gives us that flexibility to put these aircrafts more to work and get more utilization of those existing fleet as well. So we're not capped out, and we're not only limited to the 2 spares and 4 777s. Those are there for sure, but to take advantage of the ad hoc opportunities, ad hoc charters, which is a major part of our business, we have a lot more resources and a lot more capacity that we can do. And in order to answer your question effectively, we always heard a number of years ago that we are too centered in the domestic. We are too reliant on Canada Post Group of Companies or Purolator or UPS. And then it came, you're too reliant on Amazon. And now if we get -- add DHL with the different services, I'm going to get, I'm too reliant on DHL. So we will always be reliant on somebody. But if a customer give you a 7-year agreement with that $2.3 billion of capacity, I will take that reliance any day than having no reliance.

Yes, I agree. And I guess -- and that's great color, Ajay. And final question here for me is on other customers. Are you in discussions with other customers? What kind of framework? Would this be multiyear contracts that you would look to arrange? Or are you looking more kind of ad hoc with those customers for any capacity you might have above and beyond what the scope of this contract?

This is -- are you asking for the new 777 -- 4 777s and 2 767s?

Either one, just new customers on ACMI or charter, in general. I know you're thinking block hour business. Are those all going to go block hour and, therefore, any and all customers that you'll be selling to on an annual basis? Or could you envision other ACMI contracts, like the one you just signed with DHL, for other non-DHL customers as well?

We are open to having ACMI contracts. But just keep in mind, general market ACMI contracts are not as long term as what we have signed. DHL is in a unique position because they are German-owned airlines -- or a courier company that cannot operate in Canada or U.S., so the opportunities are a lot more. But any opportunities that we have with our traditional U.S. partners, like UPS or FedEx, more -- they're more of a short-term opportunities and ad hoc opportunities, but they are still opportunities. We also have certain discussions going on with customers in North America and Far East about block space agreements, and we are operating these flights as commercial flights on our licenses. So as you know, Cargojet's model has always been to look for customers and try to block space and try to market more of the space prior to even committing a service. If our costs are not paid, and there's a little bit of money on the table, we do not start a service. So we are very conscious of the yields. We are very conscious of -- we are not in a business to practice freight forwarding or air freight in our planes, or we're not here to practice loading and unloading. We are -- we want to make money at it. So our philosophy does not change one bit in that regard. And we will be -- as the time goes on, as you can imagine, this deal took one year to complete. Had we not gone ahead with the investment in the fleet and not booked those slots 2 years ago, this deal would not have happened. So yes, there is sometimes, you take the educated risk and educated guesses. But being in the industry for myself, 40 years, and my other colleagues sitting around the table at least has 20 to 40 years, some of them are founding members of this company. We have a very good idea of where the market is, where the business is, where to find more boxes. So that's our expertise. That's our only product. We do not dabble in passenger and charters and other things. We have only one product, which is Cargojet. We don't have 3 levels of economy, business and first. We only have one level, which is first-class cargo service, and that's what we pride ourselves to be.

We will now take our next question from Cameron Doerksen from National Bank Financial.

And let me echo my congratulations on getting this deal done. Really just kind of a clarification, I guess, on earlier questions just with regarding the potential for, I guess, expansion of this agreement. I'm just wondering if there are mechanisms in the contract that you have with DHL, where if 3 years down the road, they decide they want to add some incremental aircraft to the agreement, is that mechanism in place or that would require, I guess, an additional negotiation with them?

No, no. They have a mechanism, so they can expand this relationship.

Okay. Okay. That's good. And how does the, I guess, your 21Air investment fit into this, if at all? I mean I know that they also do some business with DHL. Is there anything with your agreement with them that applies to the 21Air investment that you have?

Yes. So we have a significant interest in 21Air, and we certainly plan to grow that investment. The U.S. market is a big market. And Cargojet, obviously, is a minority partner, and they will play the role as a minority partner, but has a lot of experience in air cargo and common customers. And certainly, Cargojet will use its leverage as having a bigger and better customer portfolio and more knowledge and more -- and we would certainly be passing that on. And certainly, I'm sure that this deal will rub off on our investment in 21Air, and there will be opportunities for that company to grow as well.

We will now take our next question from Nauman Satti from Laurentian Bank.

Congrats on the deal here. So most of my questions have been asked. Just a quick clarification questions. I don't know if you do this calculation, but in terms of the block hours or the contractual revenue, how much of your revenue is now sort of contractual and how much is sort of day-to-day, if some opportunities come in and you sort of go and take those opportunities?

The majority of our revenue is contracted. I think the only revenue that probably you can count is the ad hoc charters. That is the one that is noncontracted. But I think if you look at the track record and the graph, you'll see a hockey stick on the charter as well. So I can tell you that there is -- in the past 3 months, we might have turned down equal number of charters that we have done. So had we had more aircraft and have more capability, our charter revenue would have been double today. So there's many charter opportunities that we cannot take advantage of because we want to continue servicing our existing customers, and we don't want to take any risks and chances with our aircraft flying different parts of the world when we run a dedicated network. So that's our key. And anything extra, we do charters, and that's probably you can consider noncontracted and ad hoc.

Okay. No, that's wonderful. And I think on the last call, you mentioned that for an ACMI aircraft per year, it's a $12 million sort of revenue thing. Or is that a little higher than that?

Yes. So $10 million to $12 million was a good 767 yardstick for an annual revenue.

Okay. I was just thinking that since you've mentioned that the $2.3 billion, the majority of that would be sort of incremental in nature. So we should think that probably, more aircraft may go into this deal as well.

Well, yes, we just announced that there will be 5 767s, and 4 777s are going to go into that deal.

Okay. Okay. But that should cover most of this incremental there.

Yes.

Okay. That's right. Okay. And just one last one. I think this is not relating to this transaction, but the one that you signed with Amazon in 2019, I'm just wondering if I think that was $400 million for the fullest few years and then second tranche of $200 million. How did you sort of think about that transaction? How that played out, and if there was any learnings that you have incorporated in the new one with DHL?

Well, we learn every hour and every day. At that time, our stock price used to be $80, and Amazon was the most growing company and still is. It is still part of our big plans, and they're still a major customer for us. As far as the learnings are concerned, obviously, we learned from those -- we learned from all of our deals we do. And to be honest with you, the deals are only done if they're fair for both parties. And if they're not fair, they're not -- only the good deals and win-win deals close, the fair deals close. But if -- no matter what learning you do, but at the end of the day, you try and you get a win-win and a fair deal, that will close. Otherwise, the deals don't close. But certainly, when we did that Amazon revenue, again, part of that philosophy was that we are too dependent on a couple of customers and too reliant and how do we add more customers to it, and that was our answer to more diversification with the largest e-commerce player in the world. And now we have added another line of business, which we have expanded. We have become very good at it. It's incremental. We have a lot of overhead covered by our existing network and existing facilities, existing people with our core network. And adding ACMI on top and some CMI and other stuff is all grainy and utilization of our -- overhead utilization of our fixed costs. So that's how we looked at it.

We will now take our next question from Tim James from TD Securities.

Congratulations on this great agreement for you. If you could talk generally about the revenue sort of regionally, you mentioned that it's for DHL's requirements for Europe, North, South, Central and Latin America as well as Asia. Are any of those regions or destinations going to be more dominant in this kind of $2.3 billion revenue pie? And then just sort of further on that, how much of it actually touches Canada versus the U.S.?

Well, look, I mean, the -- we keep talking about $2.3 billion, but there's -- a majority of it or not -- I wouldn't say majority, but major portion of it is going to be tied to the 777 program as well. And 777s are primarily going to be long haul, Asia to North America. Whether those flights come into Canada or those flights go into the U.S., we are fully licensed to do that. And so there will be a lot of long-haul revenue on those planes. But we are also flying 767s to China. For example, we've been doing it for the past 2 years. So we can service China with those planes as well because there's a shortage of capacity obviously there. And the majority of our 76 -- and 76 program -- 767-300 program will be geared towards Europe and South America, Latin America. And 777s, you can expect them to be mostly utilized to the Far East, Asia and from that Pacific side going over the Atlantic side to India, and even new places like Bangkok and Vietnam, which we are exploring right now. So this sort of would give you an idea of where our fleet deployment will be.

There appears to be no further questions. I'd like to turn the conference back to the host for any additional or closing remarks.

Thank you, everybody. A lot of questions, a lot of great questions, and we appreciate the support that everybody has given us. Thank you for your patience. I know when we announced the quarter 4 results, we did not have all the agreements executed at that time, and so the timing was a bit off. But we want to assure you that Cargojet, its Board, its management team take their responsibility very seriously. If we announce capital plans, I think if you looked at our track record, when we announced a major capital expansion plan at any point, we have been able to deliver the goods right behind it. When it was Canada Post, we had a major capital expansion plan. When we had an Amazon deal, we had a major capital expansion plan. And now we have a major capital expansion plans that has now certainly -- certain guaranteed contracts. It also leaves us room for growth. And also you've got to be in it to win it. So had we not signed for and had we not blocked these slots 2 years ago, we would not have been able to do this deal. So all I can ask you is, thank you for your trust, thank you for your faith in us, and thank you for your patience in us. Cargojet will continue to deliver value to its shareholders, customers and its employees. Thank you very much.

This concludes today's call. Thank you for your participation. You may now disconnect.