Nov 6, 2015
Executives
Joe Hete – Chief Executive Officer Quint Turner – Chief Financial Officer Rich Corrado – Chief Commercial Officer
Analysts
Jack Atkins – Stephens Steve O'Hara – Sidoti & Company Helane Becker – Cowen and Company Vikas Tandon – Bastogne Adam Ritzer – Pressprich
Operator
Welcome to the Q3 2015 Air Transport Services Group Incorporated Earnings Conference Call. My name is Richard, and I will be your operator for today's call.
At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.
Please note that this conference is being recorded. I will now turn the call over to Mr.
Joe Hete, President and CEO. You may begin.
Joe Hete
Thank you, Richard. Good morning and welcome to our third quarter 2015 earnings conference call.
With me today are Quint Turner, our Chief Financial Officer; and Rich Corrado, our Chief Commercial Officer. We issued our third quarter earnings release yesterday afternoon and it's on our website atsginc.com.
We will file our Form 10-Q with the SEC later today. We had several important accomplishments during the quarter.
The most important strategically was the formation of our new joint venture in China with four other partners including Okay Airways and Vipshop. That venture called the United Star Express we will be launching next summer initially with 737s freighter service.
In addition to return on our investment, we look forward to supplying many of the freighters it will need as it expands in step with China's rapidly growing e-commerce market. We also booked enough business to keep our fleet fully deployed through the fourth quarter.
Our maintenance and logistics businesses are also very busy. The first of more than 80 Boeing 717s arrived last week for heavy maintenance check under our new multi-year contract with Delta Airlines.
We devoted lot of time this summer to prepping an unusual number of aircraft for new deployments. We interrupt our revenue stream and incur cost when aircraft are moving from one operator to another.
As a result our third quarter earnings and EBITDA were as we forecast, down from a year ago and off the pace we were on in the first half. We still expect to reach our guidance range of $190 million to $195 million for 2015 via strong fourth quarter.
Quint is ready to cover the third quarter results and update on our solid financial position as we close out 2015. Quint?
Quint Turner
Thanks Joe, and good morning everybody. Let me begin by saying that during the course of this call, we will make projections or other forward-looking statements that involve risks and uncertainties.
Our actual results and other future events may differ materially from those we described here. These forward-looking statements are based on information, plans and estimates as of the date of this call, and Air Transport Services Group undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions, factors, new information or other changes.
These factors include, but aren't limited to changes in market demand for our assets and services, the number and timing of deployments of our aircraft, our operating airline's ability to maintain on-time service and control cost, and other factors, as contained from time to time in our filings with the SEC, including the 2014 Form 10-K we filed in March and the Form 10-Q we will file later today. We will also refer to non-GAAP financial measures from continuing operations, including adjusted EBITDA and adjusted pretax earnings, which management believes are useful to investors in assessing ATSG's financial position and results.
These non-GAAP measures are not meant to be a substitute for our GAAP financials, and we advise you to refer to the reconciliations to GAAP measures, which are included in our earnings release and on our website. Our freighter leasing business remains our growth engine, but even in that business there are quarters where multiple aircraft are between assignments.
That’s essentially the story this time, lots of demand for our aircraft, but due to the timing of deployments and new contracts a lot of quarter to quarter volatility. Consolidated revenues for the quarter were up about $4 million or 3% to $142.3 million.
Reimbursement revenue was down $4 million from last year, so the net effect minus those revenues was a positive revenue swing of about $8 million or 6% year-over-year. On a consolidated basis, our pretax earnings from continuing operations for the quarter were $10.3 million, and net earnings from continuing operations were $6.3 million or $0.10 per share.
Both were ahead of last year’s pace through nine months. Adjusted EBITDA was down slightly from a year ago at $43.7 million and up $12.7 million or 10% to $241.4 million through nine months.
Our operating cash flow of $134 million increased $27 million for the nine-month period as our depreciation and amortization line increased to $13 million on our expanding fleet. CAM continues to perform well and its aircraft are in high demand.
CAM’s revenues were up by about $2.3 million overall including a $3.4 million increase to $23.7 million from external customers. It had 27 freighters under lease externally at the end of the quarter, up three from a year earlier.
We expect to add five additional 767 dry leases during the fourth quarter bringing the total to 32 by year-end. That includes two to West Atlantic and three to DHL.
Joe will have more to say about the improving size and quality of CAM’s leasing portfolio in a moment. Pretax earnings were flat at $13.5 million, cost increased for preparing aircraft and transition.
And CAM incurred additional depreciation from more 767-300s in its fleet. Aircraft in transition was also the story at our ACMI Services segment.
In both our press release and our comments last time, we said that the volume of maintenance C-checks was lighter in the second quarter and would be heavier than normal in the third. We had four more of those checks in the third quarter this year versus a year ago including some that took longer and cost more due to additional FAA requirements.
Our maintenance cost will be lower in the fourth quarter, when our ACMI fleet is fully deployed. Our military flying also was affected by an out-of-service runway at a combi destination in Greenland, with an impact of about $0.01 per share.
But utilization of our ACMI fleet continues to improve. Even with your aircraft are non-DHL block hours were up 10% over third quarter last year.
Overall, our airlines are performing well and they are proving every day that they can be innovative and adaptable as well. Service levels remain high and we are undertaking new ventures that leverage our decades of experience in air express networks.
We still face higher pension expenses and since April the loss of revenue from amortization of our DHL note. The ACMI business is very competitive, but we expect continued improvement in 2016.
On the other activities line, our pretax results were up slightly in the third quarter with good contributions from our maintenance and postal businesses. As more volume from Delta’s 717s and other external customer’s flows into our hangers, we expect that pattern to continue.
Our CapEx spend is running stronger than we projected at the start of the year, largely because our customers are eager for the advantages that our 767s can offer. Spending of $111 million through September included three 767-300, one each in the first, second and third quarters.
We intend to exercise on option for a fourth before year end, which along with a portion of the cost of passenger to freighter modifications will boost our 2015 CapEx to about $165 million. All of the new aircraft have dry lease customers waiting to take them under multiyear arrangements.
We will continue to fund these purchases with a combination of operating cash and borrowed funds. Our revolver balance at the end of September was $165 million unchanged from June.
Our debt-to-EBTIDA ratio remains at 1.6 times and that extends our sub 2% interest rate on variable rate debt. At this point, I will turn it over to Joe for his review of our business developments, our outlook for the rest of the year, and the status of the share repurchase program that we started last May.
Joe?
Joe Hete
Thanks Quint. We advised you in August that the third quarter would include $5 million to $7 million worth of headwinds from a combination of additional airplane checks and transitioning cost for several freighters that we’re moving to new assignments.
We also said that we had a one-time $2 million benefit from an insurance settlement in Q2, which together would mean a shortfall of around $7 million to $9 million from our second quarter EBITDA levels. In fact, it’s pretty much how it worked out.
Third quarter adjusted EBITDA was $43.7 million, down from $51.2 million in the second quarter. Maintenance and periodic contractual transitions reflect the nature of this business.
That means results can vary from quarter to quarter because of the timing events event when the overall trajectory is positive. I also told you on our August call, that CAM’s aircraft leasing portfolio was improving, not just in numbers, but also in customer mix with new agreements with carriers in Europe and Asia.
What I didn’t mention then is that the average term of the new leases we signed is also growing including eight year terms for two fourth quarter 767-300s and a third we expect to deploy next spring. Two of them that are now – will enter DHL’s US network and be operated by ABX under terms of the amended CMI agreement.
The longer lease durations, new customers and continued strong demand for our 767s are evidence that the market is turning strongly toward our regionally focused strategy, ideal for midsize 767 freighter fleets. Our expertise and scale in the midsize niche led to our participation in the group now launching a new cargo airline in China.
The ground work had led to that agreement began several years ago when we established the market presence in China and began reaching out to other airline operators there. Contacts with the management of Okay Airlines their regional passenger operator with a small cargo operation, along with recent surge in e-commerce marketing in China, eventually led to the joint venture agreement we signed on September 24 in Tanjung.
Our principal partners in the joint venture that will run the United Star Express represent a good mix of airline industry experience, e-commerce marketing savvy, and local market knowledge. One of them Vipshop is a major e-retailer in China and initially a significant source of volume for the venture.
We will acquire a minority interest in United Star Express for an investment of about $16 million over the next nine months. As the venture grows with operating support from Okay Airways, our role will be to offer advice and technical support and to source additional freighters to build out its fleet.
That would likely include dry leases of both small and midsized types that fit the market that United Star intends to service. This venture is a big strategic opportunity for us to build an early presence in China’s air express market.
Since online shopping is relatively new phenomena there those networks small and are currently served mainly by smaller narrow body freighters. But with ecommerce growing expected to reach more than 40% this year in step of China's expanding middle class, we think the opportunity to introduce larger airframes including 757s and 767s won't be far off.
Our role in this venture in China and our partnership with West Atlantic in Europe stem directly from our decades of managing air express networks. The trial ACMI express network that we launched in September for a US customer has been performing well.
It started with two of our 767s and a sort operation here in Wilmington and will grow to five aircraft next week. We are completing arrangements for even more 767s for customers in the US, Europe and Asia.
This will include eight 767s in the fourth quarter including five long-term dry leases. Several others are slated to go out early in 2016.
That mix of opportunities is why I’m optimistic about both our leasing and ACMI business in the short term including a fully deployed fourth quarter and into next year. ACMI remains an effective entry point for operators as those regional networks and we are a leading source of the turnkey solutions they need.
I mentioned in my opening remarks that the first of the 80+ Boeing 717s from Delta Air Lines arrived in Wilmington last week for heavy maintenance service. The 717 is the functional equivalent of the DC-9, which was a core of our fleet for more than 20 years.
Relaying on that expertise, our AMES MRO was able to provide Delta with quality service over a multiyear commitment. That’s in addition to a range of new customers AMES is attracting with its new capacity.
We’re also able to extend our relationship with U.S. Postal Service for a management of five of its regional sort centers for another 16 months starting in December, plus an option for an 18 month extension.
Last quarter, we raised our adjusted EBITDA guidance for 2015 for a second time to a range of $190 million to $195 million. I’m confident we will get there if we meet our remaining deployment targets and continue our solid performance against service quality metrics.
Finally, let me give you an update on our share repurchase program. Since May, we have applied $8.4 million to this program, including $6.9 million through September.
Those share repurchases will continue as part of our strategy to maximize the value of your investment in ATSG through a combination of growth investments, debt prepayment and return of capital. That concludes our prepared remarks, Richard we’re ready to take the first question.
Operator
[Operator Instructions] Our first question on line comes from Mr. Kevin Sterling from BB&T.
Please go ahead.
Unidentified Analyst
Hey good morning John. This is Chip on for Kevin.
First off, if you could just provide a few more details on the new China joint venture, just your initial role, I think you mentioned it’s going to launch next summer with 737 service?
Joe Hete
Yeah, Chip I will let Rich Corrado…
Unidentified Analyst
If you could just talk about the initial role, the number of planes where you see that opportunity going two, three, five years from now, and when you guys have the extra capacity to handle this new business and are 737s something that you guys are considering getting into? Or when would 767s enter the China joint venture?
Rich Corrado
Good question Chip. Initially our project is scheduled to run through the end of June of 2016 and we hope to flying the first aircraft in July of 2016.
The quickest way to get the AOC in China since our partner Okay Airways already fly 737s was to go with the 737 initially because there will be an easier path to get the AOC started. Our initial plan is to have three to four 737s flying by the end of 2016 and then look to 2017 to begin to push the market on the 767.
If you look at the China market today there are no medium wide-body freighters flying within China. When we looked at this market, and we’re seeing the growth and looking at the strategies that the express carriers were taking in China this looked like the prime time to get into the market in preparation to get medium wide-body aircraft there.
If you look at S.F. Express, the market leader, they acquired five feedstock aircraft from Qantas last year and they have an agreement with Boeing to convert those to freighters, and I believe they’re delivery of the first one in December.
We’ve had a number of conversations with S.F. Express about their strategy going forward.
As it stands right now, we're already implementing our commercial strategy in China and we believe that we’ll be flying and it will have customers for the first three or 737s moving into the second half of 2016. So the market looks good and we think our strategy is sound and we look to be – have those initial aircraft deployed out of the gate.
Joe Hete
As far as us looking at 737s, Chip, yeah it’s an aircraft that we would add to our lease portfolio if the right opportunity would come by and of course this would be a good place to start. As far as 76 to anticipate getting probably in 2017, the first 767 placed into the JV.
Unidentified Analyst
Okay. Great.
And then looking at ACMI, looks like we sort of took a step backwards in terms of profitability this quarter. How quickly do you guys think you can rebound and get back to profitability again in the segment?
Quint Turner
Well, we’ll rebound in the fourth quarter, as we’ve noted in the press release and in our remarks that we expect to be deployed in the fourth quarter, in fact there is probably more demand out there right now than we have available asset. So we’ll see a nice rebound or should see a nice rebound in the fourth quarter in the ACMI segment, and then hopefully that rolls into 2016.
Unidentified Analyst
So post peak, do you expect to be fully deployed?
Joe Hete
Now, post – lines during the fourth quarter two absolute minimum, so that you have full availability of assets and cap to the first of the year you get back to where you’re at and start doing some of your routine maintenance, but it won’t be a full deployment at that point.
Unidentified Analyst
Okay. And then on maintenance, Quint, I think you said Q4 is going to be a little lower, are we back in that $23 million range?
Quint Turner
Yeah, Chip, it’s – you are in the ballpark there. I think what’s important to recognize is that line item includes sort of the engine cost, much of which is variable and our revenue contracts are reimbursed right away, as we incur – fly additional block hours during the peak season, that will be picked up in the revenue line.
And so while the overall number may only drop a little then the mix, the portion of it that’s related to the airframe maintenance, which isn’t reimbursed right away because you know on our contracts we kind of get that amortized in over the months. That’s going to drop significantly in the fourth quarter because as Joe said we have all our planes available during that peak season.
So the portion of that $23 million that you referenced is related to the airframes will be lower, but the engine stuff that's reimbursed right away in revenue will be higher. So the net number may not change much, but in terms of the bottom line impact improvement in the fourth quarter because that airframe piece drops significantly, and the topline revenue will jump quite a bit.
Unidentified Analyst
Okay. And then one more and I’ll jump off.
I thought you said, and maybe I heard it incorrectly, 2016 CapEx was $165 million, did I hear that correctly?
Quint Turner
No, that was the update on the guidance for the full-year 2015. The 2016 guidance will have, you know when we talk you guys next quarter, and we were at $150 million of guidance I believe when we spoke to you at the end of second quarter in August.
The increase is due to an additional 767-300, which we’re going to buy and begin to modify in the fourth quarter for deployment early next spring under an eight year lease with a customer.
Unidentified Analyst
Okay. Sounds good.
Thanks guys.
Operator
Thank you. Our next question on line comes from Mr.
Jack Atkins from Stephens. Please go ahead.
Jack Atkins
Hey guys, good morning. Thanks for the time.
Joe Hete
Good morning Jack.
Quint Turner
Good morning Jack.
Jack Atkins
So just to go back to the joint venture for a moment, a couple of questions there, following up on Chip’s question. So will this JV operate similar to West Atlantic JV?
Are you guys going to have any sort of responsibility for aircraft utilization or is it simply going to be leasing in the aircraft and then whether they utilize or not, does that really impact you guys?
Joe Hete
Well, it will be similar to – just like with West, we expect to account forward under the equity method and we will pick up our ownership share of their operating results, so in that respect we will be impacted by their utilization and success and profitability of their operations, but just as with West and as Rich explained our primary focus is on participating in the leasing side in terms of the assets still require.
Jack Atkins
Okay. That makes sense.
And then in terms of the initial capital needed, I guess $16 million is what you guys put up in your minority interest, what portion of JV will you own and then you know as far as the four 737s how much additional capital will that require next year?
Joe Hete
Our initial ownership percentage is 25% and that’s the limit of what we could own of the JV going forward based on Chinese regulations. The 737s converted freighters depending on the 737-300 or 737-400 would be in the range between $6 million and $8 million converted.
So if you look at four aircraft, somewhere between $24 million and $32 million.
Jack Atkins
Okay. That makes sense.
And then when we think about that additional aircraft that you guys are taking out the option on, later in the fourth quarter, is that going – have you guys disclosed to their customers and is that going to be a non-DHL customer?
Joe Hete
Yes Jack, it’s a non-DHL customer.
Jack Atkins
Okay. In terms of the fourth quarter thinking out into 2016, could you maybe give us an idea of sort of what type of EBITDA run rate you expect to be on you as you exit 2016, just from a quarterly perspective, I’m not asking for full year 2016 guidance?
Quint Turner
Yeah. Jack I think as you can tell of course we can all interpolate the fourth quarter based on our range guidance, but we’re somewhere – we’re hitting in the 45 to low 50 range consistently on a throughout as we close the last couple of quarters of 2015.
As you know, we placed a lot of aircraft under dry lease contracts late this year, which will get a full year impact from next year. So we think there is certainly some leverage in our EBITDA when you compare 2015 to 2016 based upon the timing of these contracts.
That said, we won’t have the specific guidance and certainly we will have it when we talk you guys in February for 2016, but we feel very good about where we’re going to be position wise as we head into next year.
Jack Atkins
That makes sense, Quint. I guess when I’m looking at the implied fourth quarter guidance, it seems like you’re in the mid-50s or so, but it seems like you’re not going to have all those aircraft deployed or maybe later in the fourth quarter.
I’m just trying to think about what a true sort of run rate quarterly EBITDA is?
Quint Turner
You’re correct Jack, of course as we also talked about, fourth quarter is a quarter where we don't do maintenance on the airframes. We try to arrange the schedule to avoid that to for the greatest availability to our customers, and that is probably several million dollars a quarter compared to the run rate in Q1 through Q3 situation.
So when you suspend that, those Check lines, those heavy check lines, that fourth quarter always includes that tailwind. So you’ve also got to offset the timing of these additional leases with that, as you think about an average quarterly EBITDA.
Joe Hete
Jack, it won’t be too similar, when it gets to this point, from how we ended up or started off 2015 if you at fourth quarter of 2014 and then you see a drop off in the first quarter because you get the peeking out to this peers in the first quarter and then the additional maintenance expense.
Jack Atkins
Makes sense, makes sense guys. Okay.
And then last question, I'll turn it over, when we look at the ACMI segment, that’s still generating a pretax loss there. At what point do you guys expect that segment to be pretax profitable or can it become pretax profit.
Joe Hete
I think the answer is yes. We as you know on an EBITDA basis in terms of the cash flow contribution, that segment continues to provide us a positive EBITDA.
And as you know with our business model it really is all about the asset, but having that capability to do the wet leases and work with customers based upon what they require to facilitate the placement of assets is quite valuable to us. And so the segment itself generate a positive cash return and it helps us be more successful in placing assets with customers.
And I think what you see there as we’ve said in the past, you see a little more operational risk because they bear the brunt of transitioning aircraft, at times aircraft that may be not as fully utilized as they will be later on when they get into a dry lease situations. So there is some of that variability, but I think for the year we’re ahead of last year, and we expect continued progress in 2016.
I think we’ll have a good chance for that segment to be profitable in 2016.
Jack Atkins
Okay. Alright guys.
I appreciate the time.
Joe Hete
Thanks.
Operator
Thank you. Our next question on line comes from Helane Becker from Cowen and Company.
Please go ahead, your line is now open.
Helane Becker
Thank you very much. I don’t know really what happened there.
I probably pushed the wrong button. Thanks for the time guys.
So I just had a couple of pretty easy questions since you’ve already built out my model for me. Thank you very much.
Just on the Chinese JV, your agnostic as the customers on that, right. You’re just providing the aircraft.
I mean it’s a straight ACMI transaction or is it just CMI.
Joe Hete
The Chinese AOC would be the operator to the aircraft. Our primary interest isn’t leasing the assets into it, but as Quint mentioned earlier we would collect pro rata share of our earnings related to those operations.
Quint Turner
But similar to the ATSG model, the JV will not be taking, putting up scheduled flights and taking freight risk. We’ll be contacting aircrafts on an ACMI basis.
Helane Becker
Right. Okay, okay.
And then when should we take that into – I know you probably said this and I wasn't – I didn’t catch it or whatever, when should we start taking revenues from that into our model middle of next year?
Quint Turner
Right now Helane it’s the second half. Again, based upon the timing of the required regulatory approvals over there and so forth it would be the second half and even – I think next year it will fairly small impact on us because they start with an owned airplane I think, and then – so the opportunity to lease an airplanes wouldn’t really be there in a significant way until 2017.
Helane Becker
Right. Okay.
I just want to make sure I got that correct. And then with respect to EBITDA run rate for next year, we’re thinking this year is pretty good.
You raised the guidance twice, so even though you’re not raising it again in the current quarter it’s still pretty good going into fourth quarter. We’re kind of thinking $200 million as the run rate that we should be thinking about right?
Quint Turner
I don’t think that’s crazy at all Helane. But as I said, hopefully we’ll provide you an update on that February that you’ll be pleased with, but certainly we’re about that base level as we sit here now.
Helane Becker
Okay. That’s perfect.
And then my last question is with respect to the maintenance space, aircraft that you’re doing for Delta, is there a capacity there to be able to handle additional customers?
Joe Hete
Yeah we can handle some additional work here and there, Helane, but the Delta program pretty much build ups capacity on a regular basis, three continuous lines related to the Delta program. So we’re not a 100% capacity, but you always want to have some flex in there for dropping work for your own aircraft, dropping work for other folks, but our ability to take on another program similar to Delta just isn’t there today.
Helane Becker
Perfect. Alright.
Well thanks very much for your help. Everybody else covered my other questions.
Joe Hete
Thanks Helane.
Quint Turner
Thank you.
Operator
Thank you. Our next question on line comes from Steve O'Hara from Sidoti Company.
Please go ahead.
Steve O'Hara
Hi, good morning.
Joe Hete
Good morning Steve.
Steve O'Hara
I was just curious, I mean in terms of the run rate for 2015, I mean you know maybe some of the – maybe the way the stock is reacting. I mean it seem like there is a potential for EBITDA to be down in 4Q in terms of, if you kind of come into the guidance I think, I mean, I mean that would be maybe surprising I would think right if EBITDA for the quarter would be down year-over-year in fourth quarter?
Quint Turner
I think if you do the math Steven and look at where we’re at through three quarters and we’re still holding our guidance of $190 million to $195 million.
Joe Hete
Fourth quarter will definitely be up.
Quint Turner
I guess, compared to the prior year, if he hit the bottom of the range you’re saying, we’d be lower than the fourth quarter of last year. I guess mathematically, yes slightly, but again we’re giving you a range, I think we feel, we feel we’re likely to beat last year's number.
Steve O'Hara
Okay. And then just in terms of the 3Q EBITDA, I mean if add back the $7.5 million and take out $2 million maybe from previous quarter, I'm sure some of the $7.5 million is one time, but you guys are almost at $200 million right now it would seem assuming you do something above last year.
So I mean – I guess you know it seems like the trajectory is good and then you if I look at the number of aircraft in dry lease with and dry leased without CMI, I mean it’s a 30% year-over-year or it’s expected to be up 30% year-over-year at the end of the fourth quarter. And I assume that’s long-term dry leases, which I think are more stable and profitable is that correct?
Quint Turner
I think we agree with your comments Steve.
Steve O'Hara
Okay. And then just finally in terms of the CapEx, I think part of the story has been free cash flow and free cash flow production.
I mean what’s the appetite maybe going into next year for CapEx. I mean obviously if you can place an aircraft on long-term dry lease, I mean that would seem like a no brainer assuming rates are similar, but I mean I guess the ACMI piece cause a maybe agita for some, and I'm just wondering maybe what the – would you expect CapEx to be down next year or maybe flat or is there any way you think about it maybe?
Quint Turner
I think based on what we have now, it’s – we would say, it’d be certainly on par with this year. Our CapEx plans are driven by our dry lease and long-term placement opportunities, just to be clear.
We don’t – the CapEx budget spend is not driven by the ACMI Services segment. Remember the ACMI Services segment is a great tool to facilitate the placement of long-term asset that leases, but it is not what drives the decision to add CapEx, that’s more about our long-term placement opportunities.
So to the extent that the demand remains good as it is now for long-term placements, and as Joe mentioned the duration of leases are getting longer, our particular asset type seems in great demand in the market and our regional midsized freighters, then we will invest in that demand if customer step up and what long-term leases. But I think just without our specific guidance, I think it’s certainly fair to assume that it’s on par with the $165 million we’re guiding to this year.
Steve O'Hara
Okay. And then maybe just finally on the kind of ACMI charter expectation for 4Q.
I mean, if there's demand for dry leasing why – I mean it would seem like you could move some of the aircraft that are in ACMI charter to a dry lease, and maybe pull some of the aircraft from there first, assuming there 300s versus 200s, I don’t know if maybe that’s the issue?
Quint Turner
You’re exactly correct and we have done that this year. As we said in our release the aircraft that are in the ACMI segment are down about five aircraft from a year ago, and we have added long-term customer mix, we pulled some aircraft out of ACMI Services to place in those long-term opportunities, whether that's been to West Atlantic or DHL et cetera.
And so we will continue to do that where the opportunities present themselves, rather than obviously we won’t buy an airplane if we have one that it makes sense to move. And I think the flexibility we have in our business model to do that is we believe a great advantage for us.
Joe Hete
I mean the primary demand these days Steve is in the 300 category, which were basically fully deployed from a 300 perspective and that's why as we mentioned we’ve got another aircraft that we’ll be acquiring this month and it will be entering the modification process in December to deliver on an eight year lease to a customer next year. Keep in mind, don’t look at the third quarter as being representative of what the ACMI Services segment does overall, as we noted going into the quarter we were going to have a lot of additional maintenance expenses, I think Quint mentioned in his remarks that we had three more heavy checks this year than we did last year.
And of course we also had the issue with the two in Greenland, Combi runway being shut down, there is only one runway up in Greenland I guess and they have to do some maintenance work on in which you have a very limited window, and we’ll probably see the same thing occur in the third quarter next year based on the feedback we’re getting for the military. So there's $1 million impact right there in terms of unabsorbed fixed cost associated with that, so that drops the loss in the ACMI Services segment by $1 million and then you start taking in the maintenance expenses that we talked about, it gets back to a pre-level set.
Steve O'Hara
Okay. So I mean in terms the outlook, I mean the dry lease aircraft look up 30% give or take and I would assume more those in 300s, so those are going to be I would think more impactful to the bottom-line, you should have improving ACMI pretax as that maybe normalizes, demand improves and then you start to get maybe same impact from the Delta/Maintenance business expansion.
And I don’t know if you’ve quantified the – what you think the impact going forward might be from there and I guess that’s my last question. Thank you.
Joe Hete
Obviously we said that the revenue run rate there , let’s call it $20 million to $25 million a year and we expect to call it 10% on that business.
Steve O'Hara
Great. Thank you.
Joe Hete
Thanks Steve.
Operator
Our next question on line comes from Vikas Tandon from Bastogne Capital. Please go ahead.
Vikas Tandon
Hi guys, I promise again no balance sheet question. And congrats on a solid quarter, you know, I think if anybody was actually attention to what you said on the second quarter call, it looks like you guys came in a little better than expected.
Unfortunate, maybe people weren’t paying attention. Couple of quick questions on Greenland, the shutdowns you guys mentioned there, Quint I think you said it cost you basically kind of $0.01 a share of earnings.
Should we think about the EBITDA impact, basically it’s the same number around $650,000?
Quint Turner
Yes. I mean it’s actually, yeah, I think that’s right, Vikas that’s pretty close.
Vikas Tandon
Okay. And that’s obviously that runway is up and running.
Joe Hete
Yes it is.
Vikas Tandon
Okay. And is that business that’s like just lost or would you expect to get some of that business back in the fourth quarter, maybe military pushed while the runway was down?
Joe Hete
I mean, you’re not going to make up as much of anything. I mean what the combi does, and you know is a rotation of both people and supplies into that location.
So we don’t see any request from the military for an increase number of rotations. They just – through that’s called three-month period where the runway was shut down and it will just pick normal operations for the fourth quarter.
Vikas Tandon
Got you. And then the other part that I’m just sort of looking at is when I look at kind of the fleet deployment that you guys put at the end of the press releases for every quarter.
If you –at this point, you’re expecting to come out of the year with 32 basis points on dry leases and in total 56 points deployed kind of versus 52 deployed on average throughout the year. The first question, the step down this quarter on dry leases from 13 to 11, the ones without ACMI, where those cargo jet planes?
Joe Hete
The two that came back, yes they’re both cargo jet airplanes.
Vikas Tandon
Okay. And do we have anything else that’s from cargo jet that is expiring this year or next year.
Joe Hete
There will be two in the first quarter, we’re just talking to them now the question is whether they want to extend or not we don’t have anything definitive at this point in time.
Quint Turner
Rich would chime in here, but we feel pretty, very good about our prospects to redeploy those aircraft either way.
Rich Corrado
We won’t have a problem deploying the aircraft. Again, as you saw in the third quarter there may be a one month or two month down time in between prepping the planes for their future deployments, but the demand is strong enough and we’ve got cash in hand from some customers for implementation, so we’re pretty confident we’ll be able to redeploy those.
Vikas Tandon
Okay. Perfect.
That’s good to know. And then, I think the – talking about 2016, we’re not talking about 2016, but in thinking about kind of the puts and takes versus 2015, is it easiest way to think about if you’ve talked about Delta, which will have I guess small impact on 2015, but not a lot, just a little bit in the fourth quarter, and you talked about $20 million to $25 million, 10% there?
And then kind of puts and takes versus kind of what you got back from cargo jet versus new deployments. We basically have four additional planes out working.
Is that sort of the easiest way to think about and then kind of what is the right lease rate for those planes?
Joe Hete
Yeah, certainly following the aircraft and the EBITDAs generated from the assets is probably the most logical way to model the incremental improvements in our results. The – as you guys the ACMI Services segment – it’s certainly, segment it’s providing a positive EBITDA contributing, but the lion’s share of that is generated by the assets.
Vikas Tandon
And so the last part, do dry leases you’re finding, I know they’re longer term, which is great somewhere in the $3.5 million a year give or take, is that kind of the right number to think about, it’s kind of what you get from 767 deployment?
Quint Turner
Yeah. It’s in that ballpark.
It can be a little better than that, certainly when you factor in all the other stuff. But yeah, you’re in the right ballpark.
Vikas Tandon
Okay, perfect. Well thank you very much guys.
And again, congrats on a solid quarter.
Joe Hete
Thanks Vikas.
Quint Turner
Thanks Vikas.
Operator
Our final question comes from Mr. Adam Ritzer from Pressprich.
Please go ahead.
Adam Ritzer
Good morning. How are you guys doing?
Joe Hete
Good morning, Adam.
Adam Ritzer
Hey could you just run by – the $165 CapEx you’re guiding for, how much of that – how much of a pension contribution you need and how much of that is maintenance in terms your cash flows?
Quint Turner
In terms of the maintenance portion of the $165 million, it’s probably in the neighborhood of $50 million of that. The pension isn’t part of that number at all.
Adam Ritzer
Yeah, I’m sorry. Just on top of that.
Quint Turner
Oh, the pension, this year it’s in the neighborhood of $6 million, and I think that’s similar to what we had in 2014.
Adam Ritzer
Okay. So that’s pretty minimal.
I guess, you know, majority of the questions clearly have already been asked and guidance looks pretty good as you’re adding the new planes, I guess the one thing in the past you guys have talked about is stock buybacks not being mutually exclusive with adding new aircraft. And I’m just wondering with the stock trading five times EBITDA and maybe a little under and you guys putting new planes in service that looks like above six times and debt actually is down from year end, I guess it will be up in Q4 a little bit, why we’re not being a little more aggressive on buybacks with the stock at these levels, people – it seems kind of silly where the stock trades at.
Quint Turner
Well I mean, we take – we certainly that stock buyback is an accretive way, it’s accretive in terms of value generation with the shareholders and we intend to continue down that path. I mean in terms of, there is a whole bunch that goes into I guess the pace at which you can do this including the limitations based on the trading volume of the shares and the availability of block purchases under 1018 and other things, that sometimes come into play, Adam, but rest assured I mean we certainly intend to continue down the path of having – allocating capital towards share repurchase as one of the ways we generate value for shareholders.
And certainly possible that we get more aggressive depending upon what opportunities are there.
Adam Ritzer
Okay, but – okay I want to deliver the point, but it seems like if you could borrow money at 2%, I guess everything is accretive. You know, you have new aircrafts coming on, that’s accretive, you could buy stock back that’s accretive.
It seems like potentially at 2% borrowing cost we could – we could do a lot of both I guess at this time. Okay.
That’s it. I really appreciate you taking my call.
Thanks a lot.
Joe Hete
Thank you.
Operator
We have no further questions at this time. I would now like to turn the call over to Joe Hete for closing remarks.
Joe Hete
Thanks Richard. I hope you leave this call with the impression that ATSG is continuing on a growth trajectory with opportunities here and abroad for our 767s and for other air cargo services.
We’re devoting a lot of time toward building new business even as we manage for a good fourth quarter. We hope to see some of you as we hit out to tell our growth story to more investors.
Thank you for joining us today and have a quality day.
Operator
Thank you ladies and gentlemen. This concludes today’s conference.
Thank you for participating. You may now disconnect.