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

Okay, everyone, we're going to get started here. And again, just to request, please keep your mics on mute because we're picking up some background noise, and I'll say, kill your video. And when you do want to ask a question, please direct message me, and then I will be reading those questions at the end of the presentation. So with that, I'd like to introduce Ed Wegel, who's the CEO of Global Crossing Airlines; and Ryan Goepel, who's the CFO. And just a closing word, we're planning on doing these progress reports on a monthly basis because there's a lot going on. Well, clearly, there is a lot of interest as we move towards launch, which is forecast to happen late this year, and we feel it's important to keep investors and shareholders up-to-date on considerable progress that has been made in this COVID environment, and a special presentation has been prepared. With that, Ed, I'm going to turn it over to you.

Great. Thank you, Grant. Good afternoon, everyone. I'd like to thank everyone who took some time today to be on our call so that they can get an update on our progress. As Grant mentioned, we're going to hold these calls about every 30 days as we move through our certification process with the FAA and as we add aircraft, aircraft acquisitions and we make progress on all aspects of our execution of our business plan. Over the past 30 days since the reverse takeover with jet lines, we've made significant progress on our manual system, our aircraft acquisition program, key human capital hires and in other areas of our business. And let me just say at this point that we are on track, under budget and well advanced in our launch. So let's get into some specifics. We have a number of work streams that are going on in the launch of an airline. The most important of which and the one on which we are most focused and is our highest priority is the certification of the airline with the FAA. So since closing of the reverse takeover some 30 days ago, as I mentioned or we put out in one of our press releases, all of our operating manuals now have been submitted, under Phase II requirements of the FAA certification program. That includes all of the first aircraft-specific data that we need to submit, so that first aircraft is now under contract. We have all of the data that we need from that aircraft and from the previous owner so that we can put all of that into our FAA documents, as required. As well, we strengthened our team, the -- what we call the 119 team, which is the 5 individuals who are mandated by the FAA to be on property. Our new Director of Quality, our Chief Inspector has over 35 years of experience in a number of airlines, and comes to us from a chief inspector position with a major MRO here in the United States. As well, on a contract basis, we brought on, as Director of our Flight Training, the former Chief Pilot for Virgin America and Alaska Airlines. He was the base chief Pilot for Alaska on the 320 as they transitioned after acquiring Virgin. All of our software operating systems and programs for flight dispatch, our planning, maintenance, all of that have been negotiated, contracted and signed and we have implementation time lines established with each of the software vendors. We're primarily going with solutions provided by Airbus through their NavBlue subsidiary as well as our maintenance of the track system, which is used by most of the major airlines in the U.S. We've signed contracts for our pilot training and simulator time. All of those contracts now negotiated and signed, and our first 3 management pilots, which are our Director of Ops, Chief Pilot and our Manager of Standards, all of whom will fly the line as well as the management of the company. They're now in FAA A320-type certificate training. Okay, next. So on the equity side, I wanted to talk a little bit about where we are and what we're seeing out in the market. Let me tell you first that as a result of, frankly, the COVID situation, which has caused some disruptions in the airline sector. We're able to negotiate deals now for airplanes, software, people, consultants and so forth at significantly reduced costs as compared to pre-COVID. And in fact, we now project that the amount of cash that we will need to get certified is about 40% less than what we had projected to need just 2 or 3 months ago as we were getting started with this process. The draws under the GEM facility will start, as we've previously disclosed. GEM is very supportive of us. And we will only draw as we need it to maintain our certification progress and, hopefully, as our plans are executed, and there's more and more acceptance of our stock in the market. We think that, that GEM facility will become much more efficient for us as time goes on. We've engaged with a number of airline equity research analysts at investment banks, both in Canada and the U.S., and that has resulted in several of the U.S. banks approaching us to start discussions, certainly nothing in concrete, but merely discussions. But it's very encouraging to us that they like to continue discussions in support of a future equity raise, a secondary raise in the U.S. In terms of insider buying, I'm happy to announce that some of our management team have been buying in recent days. As well, I've acquired a number of shares on the open market, and I intend to exercise the warrants that I got as part of the sale of shares in late June, and I'll do those in equal installments over the next 3 months. So management is committed, and management has got some skin in the game. So next. Our aircraft strategy has evolved over the last several months, primarily as we looked at the costs associated with aircraft and what was being offered in the market as a result of the COVID disruption. We think that the market now is in great favor for the lessee or the buyer of aircraft, and we think the situation will continue for at least the next 12 to 18 months, and that translates into a significantly reduced cash deposit requirements for aircraft. So typically, a start-up airline would put up as much as 6 or 7 months of deposit for an airplane. We're now getting 2 to 3 months’ worth of deposit requirements. And in some cases, we think we can even reduce that. Aircraft, the A320, specifically can be acquired under lease, under what we call pure power by the hour type deals where we only pay for the airplane as we fly it as opposed to having a fixed rate lease on the aircraft. This significantly mitigates and reduces our risk in the early months as we are building up our contracts and our flying hours, and it also means that in certain periods of the year where typically, charter flying is less than peak, we should be able to reduce our overall lease rate costs for the aircraft over the next few years. So we've got lower overall cap lease rates. And what we're seeing right now are our cap lease rates that are about half of what they were 6 months ago. This is a significant, significant advantage to GlobalX as we move forward. And so we've made the decision as a management team and at the Board level that we will seek to secure all of the contracts for both current and future needs through the end of 2022, which is a minimum of 10 A320s, 5 to 10 A320, 321 cargo aircraft. We want to put those in place over the next 6 months, while the market disruption is at its maximum, and we can drive the best deals in the market for our aircraft. So talk about specific deals. Next slide. The first deal, and we alluded to this in one of the press releases 2 weeks ago. We're focused on several aircraft that are coming out of a major U.S. airline. This is a significant advantage to us because the aircraft have already been on a U.S. type operating certificate. They're fully FAA compliant, and they require minimal work for us to put them on our certificate to be able to fly them. In fact, all we simply need to do is paint the airplane and we can start flying it once the FA approves our certification and approves the aircraft onto the certificate. These aircraft have a full Gogo wifi and Seatback TV, which gives us a major competitive advantage in the current charter market. We expect these acquisitions to be completed by mid-August. So that's for one aircraft, an option for a second, which we probably will exercise, and we can acquire up to an additional 8 aircraft under this financing. As I mentioned before, this first aircraft was included in our initial manual submission. And so -- and that was with the cooperation of the current owner. So we believe the likelihood of closing this transaction is near 100%. The second deal now in negotiation shows pretty much the power of our negotiating or bargaining power in this market. We've been offered, we're now negotiating for 4 A320 aircraft in what we call high gross weight, high thrust configuration, which is the best possible combination, pure power by the hour, capped at $110,000 per month. And the lessor is offering a nonconvertible -- preferred equity investment, nonconvertible into shares, which is important for dilution into GlobalX for what we call integration support of the aircraft onto our certificate. Third deal now in negotiation, which is running in parallel, really with the first deal. We need an A321 to be flown on our Cuba routes. Again, we have a pure power by the hour, the -- we're still negotiating, but the hourly rate, which includes maintenance reserves and other payments that are required under the lease, is significantly less than what we would typically pay. We're looking at a 2-year lease deal on this aircraft. And at that point, we are working with the lessor to convert that aircraft to freighter so that we can start our cargo operations. Next. Almost equally as important at this point to the certification is a parallel track, where we start to develop the revenue contracts for charter flying once we are certified. Over the past 30 days since the RTO, we brought on board a very senior, very experienced Head of Charter programs, who has extensive experience working with the major hotels, casinos, cruise lines and tour operators. He's already started to work in contact with all of the major casino groups and cruise lines and some of the major hotel groups, which I'll talk about in a moment. We also firmed up the initial Cuba contract, so that's 4 hours of flying per day, which we think will expand over time, working with other Cuba tour operators now in their requirements. And as I mentioned on the previous slide, we've identified the aircraft that we will use to fulfill this flying or at least the initial 4 hours of flying, which will -- because of the size of the aircraft, the number of seats and the amount of cargo, personal cargo that, that aircraft can take. We think that gives us a significant advantage in the market. And we're actually looking for a second A321 to put on Cuba as well. We've also started development of the -- what we call the Atlantic City focus city. You saw in a previous press release that we signed an airport use agreement at Atlantic City, and we've also, in discussions and negotiations for a land lease where we can develop a hanger facility that would hold one A320. We intend to base several A320s in Atlantic City. It puts our airplanes up in the northeast of the United States, where most of the ACMI and wet lease charter opportunities originate, particularly the ones that come up very quickly on what we call ad hoc basis out of New York, Boston, Philadelphia and the Northeast. So we have a plan to put 2 airplanes there to start. We've met with all of the major casino resorts there in Atlantic City and we are starting to put together contracts for flights from Canada, Montreal and Toronto, and as well, some other U.S. cities into Atlantic City. Our discussions with the major casinos and the major hotels have led to other discussions for us to put charters into Las Vegas, Mississippi and other points in the U.S. So this is a key initiative for us. And I think that it bodes well for the Atlantic City initiative that gives us a huge stake in that particular market. And as well, in that type of client, the big hotels, the big casinos, many of whom -- contract for hundreds of charter flights every year. Next slide. As well, and following on with that thought, we've started discussions in Nassau in the Bahamas, both on Paradise Island and in Nassau with some of the big hotel groups there. And we're looking at charter flights from Toronto, Houston, Tampa and other key cities that they've identified that they need, particularly as they come out of the downturn from the coronavirus situation, they're going to need to put seats into these markets very quickly at a cost advantage and package those with hotel rooms. So we think that we're going to be very well positioned to help a number of these, both casinos and major hotel groups, to gain back business by providing our charter lift to them. And we started discussions and negotiations with the major cruise lines to put together ARC packages where they can sell, again, as they did in years past, a sea air -- air/sea package to get the consumer to the ship and then back from the ship back home. In the post-COVID environment, we think that charter operations where we can prescreen passengers and where the people on the flight feel that they have -- know a little bit more about who's on the airplane with them. They're traveling in a group. They get off the airplane, they get on a bus, they go to the ship. This is going to be a major advantage for cruise lines to be able to get their customers comfortable again with cruising, and we intend this to be a major source of revenue for us in the years to come. Probably, the major initiative that we've got now on the revenue side is something I've talked about both before the RTO and then immediately thereafter, what we -- how we intend to monetize and use the Canada Jetlines brand as we go forward. We think that there's a tremendous opportunity for us initially to use the intellectual property to create a tour operation in Canada. We've retained several strong, highly experienced Canadian tour operator executives who have a lot of experience running -- establishing and running major tour operations in Canada. We've got an initial plan for the launch of our cross-border charter flights starting in the spring of 2021. These tie into Atlantic City, Nassau and some of our other initiatives. But we're also looking at flights out of Eastern Canada, as I've said before, down into South Florida, Orlando, Tampa, Fort Lauderdale, perhaps even, Miami. And some of that would probably connect with some of our Cuba flights and as well our Nassau flights. So we're still putting this -- the final plan together for this. It's got to go to a Board review and approval sometime in August. But we're very excited about the numbers that we're seeing and the type of revenue that we think we can drive using the intellectual property from the Jetlines acquisition, which is both the booking platform, the name recognition that was generated by Canada Jetlines. And hopefully, that translates eventually into a spin-off of Canada Jetlines, as we've talked about before, to realize its full potential as a leading travel brand. Next. So in summary, a number of things that we've talked about today. We're currently well into our Phase 2 of the certification process. We have a vastly improved cost structure, again, primarily as a result of COVID, but we've also worked very diligently sharpening our pencil and making sure that the new hires that we bring on are just in time so that they come on board and start producing for us immediately. You'll see that management is financially committed to this deal with our own buys of stock, both at the time of the takeover and currently. We're in an extremely favorable acquisition market right now for aircraft, which we're taking advantage of. We're seeing opportunities in both the passenger and the freight side of this business. And we're able to attract because I think that we've got a very dynamic business plan, partly because of some airline disruptions again. But we're able to attract very top talent to this company, which will bode well for us to get us through the certification, and then as we start into operations and we expect to grow fairly quickly, up to 10 airplanes in service. That will require a lot of management talent to be able to manage that process and that growth. So we feel pretty good about where we are. As I said, we're -- in terms of the certification, we're on track. We're under budget, and we're performing well as a team and in our interactions with both the FAA and the DOT at this point. So with that, that concludes the formal part of the presentation, and we're happy to take any questions that anyone might have.

Ed, thank you for that. As stated at the start of this presentation, please go to your chat button at the bottom of the screen. Click on that, you'll find my name, Grant Howard, and direct message me. We'll give us a couple of minutes for people to send their questions. And it's a full house, and we've got 100 people screening right now. And just so everyone's available, we will be sending out a notice, I anticipate early tomorrow morning, with a link to the recording of this event so that you can pass it on to friends, family and other relationships. And because we're going to be doing this every 30 days, I think that gives you some idea of the amount of progress in a very short period of time that management is anticipating making as it moves towards launch. So again, approximately every 30 days, we'll be doing this webinar. Well, there's several questions. I'm just going to start at the top here. In fact, they're coming in very quickly.

Do you plan to go to NASDAQ?

Do we plan to go to NASDAQ? Our -- we're working now, as you know, we're on the OTC Pink Sheets, working on a plan to get us to the Bulletin Board. And then as we pass through the requirements to move to NASDAQ, which is basically an asset test and some other requirements, we do intend to trade on NASDAQ.

I'm not sure about this one, but the question is at what price level do you see the second financing? That's a bit tough to answer at this point.

Yes. We have not -- let me just say, we've not made the formal request for the first draw from GEM. We've had very strict cost control as well as cash control here at the company. And so we want to push out that first draw as far as possible. And so we're cognizant of drawing on that and the dilution that comes from that, although we do need that cash in order to build value in the company. So -- and we anticipate that, that value will translate into economic gain for all. But it's hard for us to say right now where we would price that next offering.

Yes, much depends on the market. Our next question, are all aircraft at global plan to be PBH?

The first 2 airplanes will not be powered by the hour. The capital cost of those airplanes is so significantly low and the funding and financing that we're able to put on those airplanes is significantly favorable. In fact, we can over finance the airplanes and put some cash into the company, which is not dilutive to shareholders. That, we will acquire those airplanes and do a sale-leaseback of the airplanes, which is significantly advantageous for us. Those 2 airplanes are very important to us because they are currently end registered, which means they're on the FAA registry and require minimal work for us to be able to start flying them. Every airplane after that, we anticipate, will be on a power by the hour, and which is why we want to secure all of aircraft that we can possibly secure over the next 6 months. At some point, as the general economic recovery and the airline industry recovers, those deals will start to get less and less favorable to us. So we want to lock in deals now at the most advantageous rates for us. So right now, I anticipate that the first 10 -- outside of the first 2 airplanes, which we are acquiring, as I mentioned, the next 8 airplanes after that as well as some 321s for freighter conversion, will all be acquired under power by the hour terms and conditions.

Next question. Do you have any concerns with the new Canadian airline, OWG, that just announced their Cuba South destination?