Global Crossing Airlines Group Inc. (JET) Earnings Call Transcript & Summary

Welcome, everyone. We're going to get started. I'm Grant Howard, President of The Howard Group. And many of you have already gone through this presentation because we send a link to it a few days ago. And we know that there's a lot of interest because as of an hour ago, we had over 140 registrants of this presentation today. We started receiving some questions. [Operator Instructions] Today, we're going to hear from Ed Wegel, who is the CEO of Global Crossing Airlines; and Ryan Goepel. Just a little bit of background, as contained in the presentation, Ed has over 35 years in the commercial aviation business. Interesting, and co-founder of the United Express, Founder of Republic Airways and Founder/CEO of Eastern Airlines. Ed is going to be talking to us about his vision because, obviously, this is a counterintuitive situation based on our COVID environment. And Ryan has got over 20 years in senior finance roles, a lot of experience, as they call it, a narrow-body aircraft. And interesting, got a lead role in the original Burger King IPO. With that, I am going to turn it over to Ed and Ryan. And again, Ed will speak to the vision. Ryan is going to do the presentation. I know there are a number of questions because we did receive some in advance of today's presentation. And a lot of those will be dealt with throughout. So with that, Ed, it's your turn.

Sure. Thanks, Grant. Good afternoon, everyone. Good morning to those of you in Vancouver. Thanks -- first of all, thank you for taking some time out of your busy day to listen to us and listen to our story. I also want to thank Grant and his team for putting all of this together for us. Fairly quickly, over the last few days, and we've got a good relationship now with Howard Group, and they'll be handling a lot of our Investor Relations going forward. So we look forward to close ties with them. I'll introduce myself, as well, our CFO. Grant has already made a couple of comments on that. We'll give you some general comments on where the airline industry is right now. And then some of the highlights of this investment opportunity and why we feel that this is the exact right time to be launching a new airline. As Grant said, sort of counterintuitive to what you may be reading in the news. After that, Ryan will walk you through some slides in the deal structure. And then we'll answer any questions that you may have in the time that's left. As Grant said, I founded Global Crossing about a year ago. I see -- I saw and continue to see a need in the U.S. market for a new world-class ACMI wet lease charter carrier, given the consolidation that's occurred in this sector over the last few years and what we see as the market opportunity. I wanted to do it, though, where we were well capitalized, had the support of a strategic partner which we have in both Airbus, and now with SmartLynx, which we'll discuss during the presentation, and some other airlines in the U.S. and other providers and vendors such as maintenance vendors and others who can really help us launch and grow this business. I want to stress that we are not a scheduled airline. Jetlines, the original Jetlines' vision was to be a scheduled airline, which requires a lot more capital and a lot more assets than what we need in order to start a charter airline. That allows us the ability to get started with less capital. Much more quickly, get a platform in place before we decide to go do anything else. As Grant mentioned, Ryan is a very strong financial executive. He's spent a year as CFO of a Canadian airline, which is very helpful to us. And he's got a lot of established relationships in Canada that will help us as we grow. He knows firsthand all the tasks that we need to accomplish to get ourselves on a firm financial footing and grow this airline. So we're very pleased to have him on board, very lucky to have him with us. We're excited at this opportunity that the merger with Jetlines gives us, and by extension, all of the Jetlines shareholders. The Jetlines shareholder base is a very important asset to us as we move forward. And as we get our trading volumes up, which allows us to access the GEM financing and also lets us move towards different exchanges. So we'd eventually like to move to NASDAQ and perhaps to the New York Stock Exchange at some point. We're in a very fluid period right now with regards to airlines, as you know. Many of you follow this industry, and the airline sector, in particular. But this has given us a unique opportunity to launch an airline, given the aircraft and the pilots and the other assets that we need to launch an airline. So just as an example, 6 months ago, we were negotiating for Airbus A320s. Generally, the lease rates for the type of airplanes or the age of the airplanes that we want are in the, call it, the 180,000 -- in U.S. dollars, USD 180,000 to USD 220,000 a month range. Those very same airplanes we're negotiating now, with the first 6 months free of any lease cost and an average lease rate over the term of about half of what we were going to pay as early as 4 months ago. And as well, there are a number of A320-qualified pilots who are now available. And many more will be available as American, Delta and United put some pilots out on furlough until they can grow back into their pre-COVID route network. We're talking to some of the major airlines now. In fact, about taking some of those pilots who are on furlough, having them fly for us under contract and then when they're needed back at the mainline legacy carrier, they'd leave us and go back home. So that gives us a huge advantage on costs, combined with our SmartLynx's commercial agreement where we're able to piggyback on a lot of the relationships they have in place. So in fact, our aircraft insurance for the aircraft and the passenger liability will probably be 1/3 of what we would normally pay in a similar situation as a start-up airline. We believe, as do our partners, that 2021 will be an excellent year for charter airlines. We're seeing the legacy carriers remove a lot of airplanes from their fleet. Older airplanes, airplanes that would typically go perhaps into charter or scheduled charter operations, are now being sent to the desert. The main airlines will be focused on their core business of scheduled flights on their core roots, which gives us plenty of opportunities in the charter side to gain new clients and to gain market share. We combine all of that with what I consider to be one of the strongest operating teams to launch an airline that I've seen, combined with my years in this business, plus the top 5 mandated positions required by the FAA to certify an airline. We have over 150 years of experience among those 6 individuals. And they have been on the start-up teams at Spirit, JetBlue, Virgin America and some other airlines and have tremendous experience with the A320 and also in start-up of certain operations. Ryan will get into this in a moment, but I just wanted to say that in terms of the financing, we've designed this first round of financing, $1.5 million, to be very attractive to the current shareholders. Share price under the last trading price adjusted for the reverse with the warrant to capture some more of the upside as we grow and our stock increases in value. So we, of course, hope we -- that you would participate in this financing, and we will be very good stewards of your money. With that, I'll ask Ryan now to walk through the presentation and the financing. And then I'll make additional comments as he goes. And of course, we'll be available at the end for questions. So Ryan, I'll turn it to you.

All right. All right. Just to start with the -- the disclaimer slide. As you know, the -- sorry, pardon me. Basically, this slide covers the forward-looking disclaimer language. As a reminder, this presentation does contain forward-looking information and a number of assumptions made by our team. In our documents we filed with the exchange, we outlined and detailed potential risks to our business that could impact actual results, and I would refer you to those filings, which are available on SEDAR. Moving on. As announced on [ Tuesday ], the Jetlines shareholders voted overwhelmingly to approve the combination with Global Crossing Airlines. While the name has been changed to Global Crossing, the symbol will stay the same. We are finalizing the submission of all the required documents to the exchange along with the offering we are discussing today. Once submitted, the review process takes about 5 to 10 days and assuming exchange approval is granted, the stock will start trading thereafter. Now on to the opportunity. Ed covered a couple of these points already, so I'll try not to be too redundant. But first and foremost, our goal is to be in the air by the end of the year, generating revenue. When Ed first started Global, we saw a niche in the market that was wildly underserved. The key risks that we saw was at the time that -- at the time, was the ability to secure aircraft and crew. That was pretty much all pre-corona. Since then everything has changed, and we believe has enhanced our opportunity. U.S. carriers are burning through $10 billion a month, with half their fleets parked and service level stress being reduced, which begs the question, what does that mean for Global? It means our potential competitors will either not survive or be severely weakened. It means we can secure planes at lease rates level where they were 4 months ago. And putting this into perspective on top of how Ed achieved it, when we are looking at January, there's probably 3 or 4 planes we are looking at. Today, our list has grown to 170. When you look at the layoffs announced, unless anticipated, again, we're working with some of the major airlines in that side. We've been in day with resumes from fantastic pilots and crew that will help us launch operations in Q4. We secured a number of key alliances and are in talks with numerous parties. We have access to 100 million share facility. And I think unlike with Jetlines, which is a scheduled carrier, the forecasted cost of obtaining final certification for charter is significantly lower and we believe a more capital-efficient path to revenue, which is our main focus, to get to revenue to start flying. Speaking of revenue, we have a number of agreements that we have in place. We have activated the active -- the broker network, and Ed is leading our internal effort to secure contracts. We have a signed agreement with SmartLynx where they'll provide us planes during their low season, which is our winter; and we'll provide them planes in their high season, our summer, for the next 7 years. We also had an agreement with a major Cuban tour operator in negotiations for a number of other contracts. As we progress the certification, [ an emphasis ] will be made to onboarding of new planes tied to new revenue streams. When looking at the onboarding, this is the scheduled plan for onboarding planes over the next -- through the end of 2022. First plane coming on in September; the second plane coming on in December; and then March, April -- March, May, June going forward. So how does this translate into revenue? And I apologize if I'm going quick, but I just want to make sure I cover this and to cover this quickly. We set targets for $34 million to $39 million in 2021 and we feel confident in our ability to hit them. One question that does get asked is what happens if passenger traffic returns slower than expected? Well, we see that as a valid concern. We think the more pressing question is what happens if demand returns faster than airlines can meet. It is our firm belief that people will fly again. And is likely those who do decide to fly, will do so faster than existing operators can relaunch operations. We can take the commercial airline anywhere from 4 to 8 weeks to bring a plane that has been parked back into service. And that is assuming the crews are still employed and the maintenance has been kept up-to-date. With over half their fleets grounded, bringing all those planes back could take months, if not years. This, we believe, will create opportunities for charter operators like ourselves. When you think about it, the 3 key markets are, for us, are servicing underserved areas, periods of peak seasonal demand and large groups who want to fly together. Thinking of that in the current environment, if the demand returns faster than capacity, the recent cuts by scheduled airlines should create an exponential growth in the number of underserved areas. If demand returns faster than capacity, there will be a high demand for charter services to fill the gaps created by -- sorry, fill the gaps created by demand -- underserved demand. And finally, if demand returns faster to capacity, large groups who want to fly together will have fewer options commercially to create more demand for our services. So when I think about and we think about revenue opportunities in 2021, specifically those created by the current environment, we could not be more excited. So where are we now? We have established our operations at the Miami Airport and are finalizing terms of the Atlantic City Airport to set up a second base. Our Phase II manuals have been submitted to the FAA and DOT filing was submitted on April 10, putting us back on track -- putting us on track for a Q4 launch of air operations. One of the key questions we do get is, what about Jetlines? What about the brand? What about all the work that was done over the last couple of years? Our plan is to utilize the work done by the marketing agency, Cassette, and the booking platform that was developed to launch a direct-to-consumer product, another Canada Jetlines brand focused on transborder operations. We forecast this will happen by mid-to-late 2021 with a focus initially on routes in Eastern Canada to various sun destinations such as Orlando and Miami. Longer term, our aspiration is to become one of the leading U.S. air -- charter airline operating worldwide for airlines, tour operators, leasing companies and other industry stakeholders. We will expand from a solely passenger to cargo operations with the addition of A330 wide-body aircraft and eventually will place an order for new A320neo aircraft. Eventually, looking at the longer-term vision -- sorry, long-term vision, we want to emulate with our charter model, what AirAsia and Viva Air did, franchising the concept in different jurisdictions, and this is both a very scalable and repeatable concept ideal for franchising. So the question then is asked, why now? I think Ed covered a lot of this already. But as we discussed before, we believe we have an opportunity, the higher experienced crews, secured quality aviation assets at post-COVID prices, and launch operations with a clean balance sheet against a significantly weakened competition. This specifically is why we are so excited to go through the launches as we're doing right now. Now as far as the team that we're going to be doing it with, here's some nicer photos of the team. It's Ed and myself and Mark talking through the FAA-mandated positions. Again, this is available on our website as well. You get an idea of some of the experience and the number of hours our team has put in. And we feel we're incredibly well prepared for the challenges of running an operation as complex as this. Moving forward to the Board. We're happy to report Alan Bird and Deb Robinson, the original Jetlines Board, will be staying with us as well as Joe DaGrosa, who'll be serving -- who's one of our founders with GlobalX here. On to the cap table. One of the aspects of the cap -- one of the questions we get asked is how the shareholders will work with after the exchange. Existing Jetlines shareholders will have 32%, investors in the offering will have 23%, and the global shareholders will have 44%. And then also there's the warrants being offered as well, to give you an idea of how the structure will be set out. And as we emphasized before, we chose $1.5 million for the offering as that was the minimum we need to get the stock trading again. As we believe we're at the absolute lowest point in the market, we want to minimize dilution for existing shareholders. As for the status of where we are in the raise, obviously, insiders have taken an -- committed to $500,000 of this raise. A major aviation conglomerate, which we alluded to earlier, has committed another $500,000, and we're looking to close out the last $500,000 through different relationships and existing shareholders as they exist. One thing I did want to cover quickly with regards to the share subscription facility. We signed an agreement with Global Emerging Markets out of New York last month, and we're excited to be working with GEM as we see this facility as a fantastic fallback option, suddenly giving us the option and flexibility to quickly take advantage of opportunities as they present themselves. That being said, we are committed to expanding our relationships with the Canadian investment community and we hope to see participation today and going forward. And finally, before we get to questions, we believe through the development of our brand, pursuit of unique revenue streams, common fleet and meaningful strategic alliances, Global Crossing can evolve to be a major player in aviation, not just in the U.S. and Canada, but globally. And with that, you get the group picture of the team. I will turn it over to Grant, if you want to set us up for any questions.

Will do. And there have been several that have come in, in regards to the status of Jet stock and Jet investors that has been covered, but I'll just reiterate. First condition to resume trading is that the company has to complete USD 1.5 million U.S. financing, and there's $1 million of that, that is already committed, including from a strategic partner. So that's important. Again, that's U.S. so there's just $500,000 to go on that. Presuming that, that is successfully concluded and just for discussion purposes, let's say that happens as of the end of this month, then the application is made to the exchange for -- approval to trade, and that should happen within 1 to 2 weeks in addition. And we are sort of a mid- to 6-figure Jet investors ourselves, our group, family, personnel. If you owned 1,000 shares of Canada Jetlines, you would own 100 shares of GlobalX when it begins trading. So there were several questions in and around that. Now I'm going to go to some of the others. One person asked about cargo strategy. That was the extent. So perhaps Ed and Ryan, if you could address that.

Cargo is a very important component of what we would like to accomplish at Global. We think there will be opportunities for us to deploy the A321 freighter. We're talking with some of the conversion shops now about converting 2 or 3 321s to freighter for us. And we will place a deposit for an A321 freighter as part of this financing, probably within the next 30 days. Eventually, we'd like to operate the A330. That's a few years down the road, but the 330 freighter -- 3 3300 (sic) [ 330 ] freighter is a very important component of what we'd like to do. And that our pilots will be able to fly both the A320 and the A330, so they could get off of one and get on another and so that provides some great cost reductions for us. The cargo is an important part. We think that we've talked to a number of the charter brokers on the cargo side. They are very anxious for us to get the 321 freighter on the certificate and we think we could operate -- outside of the current plan that you see here, we can operate as many as 10 A321 freighters in the U.S., Caribbean and Latin markets.

Okay. Thank you. A contractual question, what sort of term lanes are you able to secure on your prospective aircraft leases? Similarly, what are the terms in customer termination rights, associated with your 3 existing charter contracts?

Okay. I'll take the first question, which was the terms that we're seeing on aircraft. As I mentioned before, we're seeing lease rates that are probably 50% of what they were 4 or 5 months ago. And in addition, we're able to negotiate a period of free rent, which is anywhere from 3 to 6 months from when we take the airplane until we start paying for it. And we're also getting additional dollars spent by the lessor in terms of seats and other amenities onboard the airplane. The contracts that we typically sign are, in many cases, performance-based. So the contracting party with us would be able to get out of the contract if we don't perform as we should perform in terms of on-time and reliability. But in general, the charter contracts that we sign come in a couple of different flavors. There are some that are ad hoc, where we fly one flight for a client. There are some where we have a longer-term relationship, which could be for a month to 3 months to as long as a year where we fly a scheduled pattern for them every day or every week during the course of a month. And those will have some outs based on traffic and performance and so forth. But we'd like to have a mix of both short-term contracts which come in at the last minute and for which you can charge a much higher hourly rate for the airplane and as well what we call track charter programs where we fly for a tour operator like a Sunwing or a Vacation Express or an Apple Vacations over a 6-month period. They give us 250 to 300 hours a month to fly. The hourly rate is lower, but our costs are lower because we're on a track charter program to fly for them.

This one, I think they go back to the Canada Jetlines situation, but it's in regards to past litigations. It says, any update on David Neeleman pending lawsuit.

From what we understand, and that's been held on the Jetlines side. So our merger has not been complete, as you know. We think that they are in continuous discussions with the counterparty in that lawsuit. And I would guess that it will be settled here very soon.

What is the plan for seat capacity utilization?

I think the question is getting to what do we project as load factor. One of the things to keep in mind is that we sell the entire airplane to a charter client. So we don't sell individual seats for most charter clients. We sell the entire airplane. So whether they put one person on board or 150 people on board, they pay us the same rate. In terms of the -- what we call the Part 380 operation, where we create our own tour operation and sell our own seats. From what we have seen in the market analysis we have done, by taking the specific periods of time during the year when the demand is highest on the routes that we want to fly, we think that we'll be well over 80% in load factor on those routes. And we're -- because we're charter, we can combine flights and we can move flights much easier than a scheduled airline can. So we can maximize both load factor and profitability by doing that.

Another litigation question. Can you provide status of civil proceedings or proceeding to set forth earlier this year by Jetlines towards WestJet?

I think that's part of the whole competition, lawsuits that were brought. I know that -- or we were briefed by Jetlines that they had filed all of the paperwork for that. And if there's any resulting claim that comes out of that, be it a payment or some sort of compensation, that would flow into the new company. But we certainly don't have any of those types of compensation amounts in any of our projections. We're just assuming that, going forward, we'll be a clean company. If any of that does happen to occur and we get a payment, that will be so much the better, but we're not planning on it.

On your charter strategy with tour operators, would Air Canada acquiring Transat have any impact on this strategy?

Well, we think with Air Canada absorbing Air Transat, and it's not clear that, that transaction will go through given the amount of -- the ratio and the compensation that Air Canada was going to pay to Air Transat. But in one way or the other, we believe Air Transat will be -- either go away, be part of Air Canada or be much significantly reduced in size, which means that there is an opportunity for us, in some of those markets that Air Transat serve out of Canada into the Caribbean, South Florida and perhaps Mexico, where we could pick up some of that charter opportunity and put some airplanes on those routes.

Somebody asked about the IPO and whether or not shareholders have access to this price. First off, to clarify, this isn't an initial public offering. It's a reverse takeover of Canada Jetlines. So there is no IPO. The second part of it, about the access, you must be an accredited investor to participate. And I was going to address this at the end, but I'll bring it up now. The minimum investment for credited investors will be USD 5,000. And someone asked about the terms, which are also contained in the presentation. It's a unit. It's a USD 0.25 common share, and that's U.S. again. A USD 0.50 warrant good for 2 years. So again, I repeat, you must be an accredited investor and it's a minimum of USD 5,000. If you have an interest in this, please reach out to The Howard Group Info at howardgroupinc.com. And then we will arrange for you to speak directly with Ed or Ryan because we have to step back from the process when it reaches the discussion stage. And that will be strictly between any potential investors and management at GlobalX. I believe that answers both of those questions in regards to accreditation and pricing. Let me see if there's anything else that is to show up. It was announced today that Air Canada is not going forward with Transat, a bonus for GlobalX. And I always like these ones. Do we have any idea what the stock price is going to be once it starts to trade? That's one big no comment. And we're not quite going to forecast what it's going to trade at. But obviously, we would like it to trade at some premium going back to when we work with Canada Jetlines about 1.5 years. We've never had a client in almost 32 years of providing capital market services that caught so much attention. I mean, literally, thousands of people were following it, and that was evident. As expectations grew for Canada Jetlines to get in the air, where we stock -- seeing a stock go from under $0.20 to ultimately over $1.40, it became a little overexuberant, shall we say. But we anticipate, even in a COVID environment, with skepticism, this is going to be a show-me situation, but I think a lot of those details have been outlined. I don't see any other questions so we're coming to a close here. Again, if you are an accredited investor and would like to speak to Ed or Ryan, just contact us. And then we will arrange for you to chat with the fellows regarding your potential participation. A recording of today's webinar is going to be available and we'll be sending out a link to that tomorrow. With that, Ed, or Ryan, do you have any closing comments?

No. Grant, again, we appreciate you setting this up, and we appreciate everyone's participation on this webinar. We're available to answer questions. We'd love to see lots of current investors put some more money into this -- the new company. We'd like to see some new investors come in. We'll be good stewards of the money. We believe we've got a very good and solid business plan designed for today's current airline environment, and we look forward to growing this company over the years to come. So again, thanks to everyone for participating today.

Thank you.