Cargojet Inc. has issued an update regarding its continuous endeavors to enhance the efficiency of its fleet strategy, resulting in effects on capital expenditures and cashflows.
Given the challenging economic conditions, we exercised caution in deploying growth capital throughout 2023, stated Dr. Ajay Virmani, Executive Chairman. He further explained that forecasts indicate a continued softness in the international air cargo market in the short to medium term, making it strategically unwise to introduce B-777 aircraft into the market. As a result, the decision has been made to divest the remaining four B-777 aircraft commitments. However, Cargojet will continue to leverage its B767 fleet to accommodate its organic growth strategy. Dr. Virmani also mentioned that Cargojet has made significant progress in preparing for the B-777 market entry, should economic conditions change. Additionally, Cargojet retains the rights to future conversion slots, allowing for future optionality.
Jamie Porteous, Co-Chief Executive Officer, mentioned that the 2023 holiday season performance met our expectations. Pauline Dhillon, Co-Chief Executive Officer, expressed confidence in our ability to generate robust cashflows and deliver value to shareholders, attributing it to our optimized fleet strategy and cost efficiencies achieved throughout 2023.
Cargojet does not anticipate incurring significant capital expenses for growth in 2024. Nevertheless, the company remains vigilant in assessing macroeconomic conditions and remains open to deploying capital in the event of profitable growth prospects.
Cargojet will continue with a disciplined approach to capital allocation, focusing on four key principles:
Maintain dividend growth;
Continue to identify growth opportunities to deploy capital that meet its margin requirements;
Maintain a share buyback program under its normal course issuer bid (NCIB). The Corporation will determine the ultimate size of the buyback program based on available growth opportunities and subject to market conditions; and
Target Net Debt to Adjusted EBITDA Leverage Ratio(1) of 1.5x to 2.5x (2022 Leverage Ratio of 2.1).
Under its NCIB, the Corporation has purchased for cancellation an aggregate of 366,408 voting shares as at December 31, 2023 for an average purchase price of $104.66, at a total cost of $38.3 million.
As previously disclosed, the Corporation has four surplus B757 freighters and is exploring options such as dry lease or ultimate sale of these aircraft. The potential sale of these four B757’s is not anticipated to have a material impact on Revenues and/or Adjusted EBITDA(1). In the event that the Corporation enters into a leasing agreement, the Revenue and Adjusted EBITDA would increase in accordance with typical market terms and conditions for similar aircraft. The fleet table above assumes two aircraft are dry leased and the remaining two B757’s are sold.
Cargojet currently owns the feedstock for two B767’s and plans to convert them as the demand begins to recover over the next couple of years. Management believes that the current fleet plan will be sufficient to meet its short to medium-term objectives and Cargojet is well positioned to scale up operations as the economic cycle returns to growth.