May 11, 2016
Executives
Joe Hete - President & CEO Quint Turner - CFO Rich Corrado - Chief Commercial Officer
Analysts
Kevin Sterling - BB&T Capital Markets Steve O'Hara - Sidoti Adam Ritzer - Pressprich
Operator
Welcome to the First Quarter 2016 Air Transport Services Group Earnings Conference Call. My name is Christine, and I will be your operator for today's call.
[Operator Instructions]. I will now turn the call over to Joe Hete, President and CEO.
Mr. Hete, you may begin.
Joe Hete
Thank you, Christine. Good morning, and welcome to our first quarter 2016 earnings conference call.
With me today are Quint Turner, our Chief Financial Officer; and Rich Corrado, our Chief Commercial Officer. We issued our earnings release and filed a Form 10-Q with the SEC yesterday after the market closed both on our webste atgsinc.com.
In many respects our first quarter this year was one of the best we have ever recorded. It included our second straight $20 million plus gain in revenue versus the prior year quarter and the second straight quarter that our adjusted EBITDA exceeded $50 million setting a first quarter record for that metric.
We're on course to achieve record adjusted EBITDA of $218 million for 2016 excluding the effects of non-cash pension expense and other noncash items. It's not coincidental of course that in March we completed two full quarters of operations on behalf of Amazon.
A relationship that we've formalized with the signing of a five year air transportation agreement in March. We're expanding rapidly under that operating agreement including the seven aircraft leases we have signed today.
We have purchased or have agreements to purchase all of the 767s we will need to complete our 20 aircraft commitment to Amazon. We also secure have secured the necessary slots that are principal conversion contractor IAI, we have the assets we need and the means to prepare them.
We'll continue to add flight crews, maintenance technicians and other personnel as the network expands. The warrants we’re granting Amazon are also an important part of our new relationship.
Assuming the approval of the two related proposals at our shareholders meeting tomorrow, Amazon will be granted warrants through which it can acquire up to 19.9% of our common shares over a five year period. On a GAAP basis our first quarter earnings were on par with our internal targets which assumes some front end cost as we spool up to survey amazon.
Quint will summarize of that and I will come back with a few comments about the outlook for the remainder of 2016. Quint?
Quint Turner
Thanks, Joe and good morning everybody. As always let me start 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 describe 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 are not limited to, our operating airlines ability to maintain ontime service and control costs, the number and timing of deployments and redeployments of our aircraft to customers, the cost and timing with respect to which we’re able to purchase and modify aircraft to a cargo configuration. The ability and timeliness with which the Tianjin based joint venture is able to secure the necessary approvals and execute it's business plan.
The successful implementation and operation of the new air network for Amazon, shareholder approval of the proposed equity arrangements with Amazon, changes in market demand for our assets and services and other factors as contained from time to time in our filings with the SEC including the Form 10-Q we filed yesterday. We will also refer to non-GAAP financial measures from continuing operations, including adjusted EBITDA and adjusted pre-tax 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. As Joe mentioned the first quarter was another growth quarter growth quarter for us with most revenue growth and highest first quarter adjusted EBITDA we have ever generated.
It was also a transitional period, we completed our first 12 months under extended arrangements with DHL and continued to gear up for our new commercial agreements with Amazon which started in April. We now have comprehensive contracts covering well over half of our total business for years forward.
Near term there will be timing differences between earned revenue and the upfront investments and expenses which are required to prepare for expanding assignments. Consolidated revenues for the quarter rose $30 million to a 177.4 million.
Excluding reimbursement revenues from both periods revenues rose 18% or 25 million. Revenues increased across the board but were primarily driven by growth in our dry leasing business and expanding operations for Amazon.
Consolidated net earnings from continuing operations were 8.2 million and 8.9 million for the first quarter of 2016 and 2015 respectively. On a GAAP basis pretax earnings from continuing operations were 12.1 million for the first quarter of 2016 compared to 14.5 million for 2015.
That included a $1.2 million charge this year for our share of capitalized debt issuance cost incurred by our non-consolidated West Atlantic which restructured its debt. Pre-tax earnings also included 2.2 million for the non-service components of our retiree benefits.
We indicated on our fourth quarter call that those pension costs would be substantially higher during 2016. We are projecting an increase of 9.5 million for the full year.
Removing the non-cash effects of the debt issuance costs and retiree benefits expense and quarterly effects of financial instrument transactions first quarter adjusted pretax income was 16.1 million up 13% from the prior year that increase reflects the additional external lease revenues and better utilization of the aircraft came leases to our airlines. At the same time we had higher aircraft maintenance expenses and increased depreciation and employee expenses especially in our support businesses.
CAM, our leasing business owned 56 cargo aircraft in serviceable condition at the end of the quarter, that's two more than a year ago. 29 of those were leased to external customers, five more than a year ago, 26 were leased internally to our airlines and one was being prepared for leased to Amazon.
CAM's revenues grew 21% during the first quarter to 51.7 million largely due to those five additional external leases, pretax earnings were 19.5 million up 35%. Additional lease revenues offset higher depreciation and expenses to place and support the larger fleet.
None of those five aircraft leased from March 2015 through March this year include the 20, 767s we will be providing to Amazon. The first six leases to Amazon took effect in April and 7th in May, all of which were 767-200s, we expect to complete leases for 15 of the 20 aircraft by year end including 12 767 200s and three 767 300s.
The remaining five all 767s 300s will be leased in 2017. Joe mentioned at the outset that we have acquired or agreed to acquire the aircraft and conversion slots needed to provide Amazon with all eight of the 767 300s they will lease.
CAM purchased four of those 300s in the first quarter. Turning to our ACMI services segment, revenues increased 9% to 115 million in the first quarter.
Airline services revenue from external customers which excludes revenue mainly from reimbursement for fuel increased 4 million. In the first quarter this year our fleet continued to be fully utilized and billable block hours increased 11%.
Our pretax loss in this segment was 10.4 million in the first quarter this year up from 2.6 million a year ago. There were three principal items that affected those airline margins for the quarter.
As we have noted in the past scheduled heavy maintenance for our fleet of 767 200s are expensed as incurred. We had a greater number of those checks with fewer immediately reimbursed by the customer compared with a year ago.
As a result year over year maintenance expense increased 4.5 million. As we advise you on our last call, non-cash pension expense will be up in excess of 9 million this year due to reduced investment returns on the plan assets, that increase was a $2.4 million item for the quarter.
Starting this year our adjusted EBITDA and adjusted pretax earnings will exclude these non-cash pension effects. We also have referenced the effect of the amortization of our former DHL node on our airline results.
That noncash amortization of the note ended when it was fully extinguished in March of last year, that revenue benefited 2015 pretax earnings by 1.6 million. Other items impacting our pretax earnings included additional depreciation expense for two more Boeing 767 300 aircraft and engines that our airlines operated, startup costs for Amazon operations and lower CMI revenues as aircraft were repurposed for dry leases.
Obviously startup costs that relate to transitioning aircraft and flight crews are temporary and will be better matched with revenues as our Amazon operations ramp up throughout the year. Scheduled airframe maintenance activities are greater in the first half and declined sharply in the second half particularly in the fourth quarter.
On the whole we expect our airline segment to perform significantly better in the second half with full deployment of available aircraft. Revenues from the businesses we collectively refer to as other activities increased 54% to 55 million overall, 33.7 million of which was from external customers.
Pretax earnings from other activities increased by 800,000 to 3.9 million more than half of those gains came from our mail and package handling support services which includes work we do for both the U.S. postal service and Amazon, one other nonrecurring item which affected our results for the quarter was a $1.2 million charge related to debt issuance by our European affiliate, West Atlantic.
This item was also excluded from adjusted pretax earnings and adjusted EBITDA for the quarter. Capital spending was 71.7 million which included the four 767 300 passenger aircraft and related engines we purchased during the quarter, modification costs for those and other 300s already in process and other equipment and capitalized maintenance costs.
During the quarter we drew 60 million from our revolving credit facility to fund capital spending. We also spent $3.1 million to repurchase, 270,000 of our common shares.
That leaves us with about 77 million in available credit under the current revolver not including a $50 million accordion feature that would require lender consent to exercise. We can accommodate our CapEx and other capital plans for the year within that limit but we are working to finalize agreements to increase our debt capacity to give us greater flexibility in pursuing other attractive investments.
I know that many of you have questions about the impact of the warrants issued to Amazon on our results and financials going forward. There's a good summary that the warrant program in both our proxy statement and the 10Q we filed yesterday.
The accounting treatment is a bit complex but as we indicated in our release we will reflect a revenue reduction associated with the amortization of value for warrants starting in the second quarter with the inception of our Amazon arrangements. This non-cash amortization will also be excluded from ATSG's calculation of adjusted EBITDA and adjusted pretax earnings.
On our balance sheet. You'll see an increase in our intangible assets as of March 31, reflecting 31.6 million as an intangible lease incentive asset based on warrants vested to-date.
That will be amortized against revenues over the duration of the aircraft leases. During the second quarter we expect increases to the intangible lease incentive asset to reflect additional warrants issuable to Amazon and in our GAAP diluted share count.
That covers our results for the quarter. Now I will turn it back to Joe for his outlook comments.
Joe?
Joe Hete
Thanks, Quint. The quarter that Quint just outlined for you is further evidenced in ATSGs in the best [indiscernible] of what remains a soft air cargo market overall.
21% revenue growth is rare these days and it's certainly exceptional in air cargo. We have worked hard and invested strategically to be prepared for this moment and we're pleased that more customers are turning to us for solutions to their transport requirements.
We're also making sure the solid growth is sustainable at least through the end of this decade even if not quite at our current pace, that's why we focus on longer term commitments not just for DHL and Amazon but even for strong regional providers like a Amerijet which will ease one of our converted 767 300 freighters for an eight year term. Our 2016 results also demonstrated that to deliver on those customer acquirements to take some substantial investment in both planes and people that it could affect margins in the near term.
Those investments make sense only when customers are willing to sign up for the long terms both DHL and Amazon have done since the start of last year. Transition costs and revenue interruptions are part of our business but their impact will diminish as our fleet grows, our customer base diversifies and as leasing extends the average length of each placement.
I'm confident that by the fourth quarter this year we will again be setting records for adjusted EBITDA. For the fourth quarter our airline operations will likely be operating on a profitable basis with full deployment of mainly CMI contracted fleet.
In the meantime our leasing business continues to grow at a rapid pace, CAM hit 29 leases at March 31 and it will grow to 43 by the end of this year. CAM generated a significant portion of our pretax earnings for the quarter and will remain our principal earnings engine for the foreseeable future.
Dry leasing has become increasingly popular for midsize aircraft like our 767s which serve best as a workhorse of air networks that require frequent coverage of medium haul routes. We adopted the concept of separating aircraft asset yields from airline service returns when we first offered what we called A+ CMI arrangements to DHL in 2010.
That formula has turned out to be a winning one for us and for the customers who have chosen it to guarantee continued access to key assets or retaining flexibility in how they choose to operate them. DHL's adoption of the structure with other operators in the U.S.
and abroad suggest it's a strong supporter. When our formal discussions began with Amazon last year it was clear that they wanted a similar arrangement as well.
As a result we're on track to more than double the number of 767s operating under these A+ CMI arrangements in just two years with 29 at the end of this year compared with 13 we had at the end of 2014. One other big advantage we offer is the capital efficiency of our converted aircraft fleet which our latest appraisal shows is retaining its value and justifying our extended [indiscernible] projections.
That along with our set of support services that include maintenance, logistic services and ground support represents a one stop package that no one else in our space can offer. As we said on our call last quarter our total CapEx spend this year is projected to 290 million of which 215 million will be growth related aircraft purchases and freight modifications.
As we execute that plan however we have begun to recognize the benefits of locking up feedstock 767s in an increasingly competitive market. Agreements we have signed give us access to aircraft we can purchase that would exceed that $290 million budget.
Those purchases would signify our continued confidence in our ability to place incremental freighters not just with customers we have today but also with other operators throughout the world. That can include aircraft or a joint venture in China which will operate as an express cargo airline serving multiple cities within China and serving surrounding companies countries from its base in Tianjin.
A launch date there still depends on governmental approvals and will likely not occur into early 2017. Our capital contribution will be $16 million but we expect to recoup a significant portion of that releases of some aircraft that operates.
Quint mentioned that the warrants we granted at Amazon will reduce revenue starting in the second quarter related to the value of the warrants. Assuming shareholder approval tomorrow of a proposal to accommodate the warrants with an increase in our authorized shares, the first 7.7 million shares of those warrants will become exercisable.
To be volatile over the next several years with additional warrant issuances that could leave Amazon with 19.9% stake in our company. I know I speak for your Board when I say that we are very eager to welcome Amazon as a significant investor as well as a major customer.
They have the right to name a non-voting observer to our Board and when they achieve 10% ownership of our shares the observer may be elected as a full voting director. Also note the Board endorsers our continued commitment to maintain share repurchases as a continued element of our balanced allocation approach for available capital which will also include growth investments and prudent debt repayment.
We have accelerated the pace of repurchase program as a potentially dilutive effect of awards increases. The net effect should be that our repurchases over the next five years will offset a significant portion of the additional shares that will be issued for the warrants.
Our goal as a management team of course will be to generate returns from all the new and continuing business we win in our expanding niche validating the confidence that investors share in our strategy. You can be sure that we will continue to focus on that objective as 2016 continues.
That concludes our prepared remarks Christine, we’re ready for the first question.
Operator
[Operator Instructions]. And our first question is from Kevin Sterling of BB&T Capital Markets.
Please go ahead.
Kevin Sterling
Joe, maybe touch a little bit on your service level so far at the Amazon. They are pretty service oriented intensive customer if you will.
So maybe touch on how that's going so far and you know kind of the feedback you've gotten from Amazon.
Joe Hete
From a service perspective overall the service levels we've been generating for Amazon are equivalent to what we give to all of our customers you know 98% plus on time performance from aircraft perspective and continues to be pretty strong from a feedback perspective. I will let Rich comment if he has an -- as he speak to them more directly than I do in regards to that aspect of it.
Rich Corrado
They're very happy with our service and it goes across a number of dimensions not just to perform the dispatch, the liability performance of the aircraft but also keep in mind that we run the gateway consolidations in the aircraft built as well as the hub here in Wilmington. So from that perspective you know starting those locations on time, turning the aircraft on time is in addition to the dispatch reliability, to all those things that we do that differentiate us from our competition, they're happy with the support that we’re doing.
Kevin Sterling
And Joe I think you’ve briefly touched this in your prepared remarks, as you ramp up your business with Amazon will we see some of these startups costs start coming down, hiring the pilots, the training etcetera. Should we start seeing that those costs moderate some?
Joe Hete
Yes as we noted as we put more aircraft in the service in the second half of this year obviously you'll get more revenue generation but when you think about it in the context of crewing here right now of not having definitive schedules we're probably being a little bit aggressive at this point in time in terms of adding people in anticipation of what kind of schedules that Amazon may generate later and certainly you want to get ahead of the curve going into the fourth quarter when you look at it from the perspective of not just the Amazon but DHL as well the other peak providers. We will be looking for additional flight crew.
So as move into the second half of the year, you'll see that get moderated somewhat obviously the revenue will offset what additional cost will be carrying that.
Kevin Sterling
And I'm sure you saw last week in with Atlas, they've got an agreement now with Amazon. But you know it's interesting they said they have an agreement for an additional 10% where Amazon can take an additional 10% warrants above the initial 20% as long as Amazon gives them additional business.
In your agreement with Amazon, do you have any triggers in place like that or are their additional business opportunities with Amazon maybe without the equity investment. So I guess my question is, is there anything that precludes you from doing additional business above and beyond the 20 planes you have now if an opportunity were to present itself.
Joe Hete
No in terms of our current agreements there is no kicker in there so to speak in regards of additional 10% but not to say that we would be open to something like that and there is certainly is no limitation of additional business with Amazon above and beyond the 20 airplanes we're going to provide today plus the operation to same.
Kevin Sterling
And then Joe, I know you’ve mentioned you’ve secured all the feed stock in the places in line for the conversions but if you wanted to go above and beyond those 20 planes, are you finding it little bit more difficult to fund feedstock or do you think you know you will be able to fund feed stock if opportunities were to present themselves. We probably got ahead of the market in that respect Kevin and that we have lined up feedstock out in 2017 above and beyond what we would require for the aircraft that we had to deliver at Amazon, obviously our other primary customer DHL, we expect to have an appetite for additional lift going forward as well as some of the other customers that we have in our portfolio.
So we have feedstock in place today that we think is at the price point we have always targeted in terms of being able to put an asset into service for $23 million to $25 million range. So right now we're real comfortable with our feedstock situation.
Kevin Sterling
And last question here, you talked about the Chinese JV and you said it's more likely at 2017 event I think pending regulatory approval, initially do you have any planes you might place in that JV?
Joe Hete
Kevin, the first tranche of aircraft will be 737 and so where we're working on some aircraft right now is to get the aircraft -- to get the AOC certified you need three aircraft to start an airline in China, though we’re in process of working with our partners to find those aircraft right now. We have one that's already on the certificate of Okay Airways out of one of our aviation partners over there and we’re working on the other two aircraft right now.
The 767s would problem that we anticipate being able to place there would be later, probably late 2017, 2018 before we get to that [indiscernible] aircraft.
Operator
Our next question is from Jack Atkins of Stephens. Please go ahead.
Unidentified Analyst
This is actually Andrew on for Jack, Quint just a question on the warrant, you guys said there is 7.7 million shares that assuming approval tomorrow will be added. Can you provide some details as to when the additional 5.1 million shares will be available?
I know it's related to plane deliveries, would you expect those to be available for Amazon in 2016? Given that you will have 15 aircraft in service for them?
Quint Turner
Of course the shareholder vote which will have the results of that at our meeting tomorrow but that -- we’re cautious -- we’re confident I think that the shareholders you know will approve the measures. But at that point the authorized share count will expand.
So the 12.8 million warrants roughly which were initially granted to Amazon when we signed the deal that will best you know as we move forward, we put aircraft in service and it's really over the last tranche of aircraft 767 300 which that takes place but they will hold the warrants and they will vast as we put the final aircraft in service.
Unidentified Analyst
That will be more of a late 2016 to 2017 event when the last tranche arrives.
Quint Turner
Right, one thing I wanted to point out though however is that you know in terms of trying to look at the diluted share count that we'll have for GAAP purposes next quarter you will see a pretty significant increase in the diluted GAAP share count and I wanted to make you and the other analyst aware that essentially because the deal was signed in March it had a diminished impact, a pretty small effect on our share count for first quarter but in the second quarter you know you'll have the whole sort of 12.8 million warrants which is as you know there's an exercise price of 973 so we will buy the treasury stock method to that and based upon what the share price is in the market we will calculate you know the number of shares it could be bought back applying the treasury stock method. The difference between that and 12.8 million will end up going into our diluted share count in the second quarter.
So you know if you just do this roughly I don’t know, the price is currently but if it's 14 plus bucks a share you know you could be talking about as much as 4 million shares less whatever we buyback that would go into the diluted share count in the second quarter. So you just need to -- when you're doing your EPS estimates you just need to factor in a larger share count for next quarter.
Unidentified Analyst
Along the lines of repurchases. I know you said over the five years you expect to offset most of the dilution from the warrant you know as far as looking at 2016, could you give us any you know outline or commentary on how much you expect to offset this year, half of it, a third of it, a quarter of it anything like that?
Joe Hete
Well I don't want to give specific guidance on it. You know as we said we bought back 270,000 shares in the first quarter and you know we like to be opportunistic in that.
So I really don't want to give any forward guidance on the timing of that but we have every intention of continuing to allocate capital to buyback our shares, we think they're an excellent value and we'll look for opportunities to do that.
Unidentified Analyst
And then one more kind of bigger picture question, you know outside of your agreements with the DHL and Amazon, can you provide some color on kind of what your pipeline of potential new customer contracts look like?
Rich Corrado
It's actually a pretty healthy pipeline you know we don’t have a lot of assets over and above what we've already allocated for placement this year which will be 4 to 5 aircraft in addition to the Amazon aircraft that we're placing and they'll be replaced in the far east in the U.S. We also have some opportunities in Europe and in the Middle East as well, so that the pipeline remains strong.
Obviously we're going to be focused on delivering for Amazon this year but we do have 4 or 5 other aircraft that we will be delivering on a dry leasing basis.
Operator
Our next question is from Steve O'Hara of Sidoti. Please go ahead.
Steve O'Hara
I was just curious with the announcement of Atlas's agreement, I'm just in terms of the ability to get aircraft through conversion and so forth, I mean I assume you know that you're fairly confident that that's still very doable and you have the slots available or there's not going to be this arms race I guess trying to get these aircraft bought, converted.
Joe Hete
We had lined up Steve, all the way through the end of 2017 late last year. So from a conversion perspective we have the ability to run 12 more airplanes from a conversion standpoint 2017 and at least induct 12 more airplanes in 2017 and as I mentioned earlier to Kevin's questioning is we have lined up a nice stable of feedstock to be able to fill that pipeline when the customer demand materializes.
Steve O'Hara
Okay. And then I guess may be just on the mix of aircraft.
You know maybe versus what Atlas you know the contract of Atlas, I'm just wondering you know was there a preference by Amazon to use the 200s from you or was that your preference or how did that kind of inbound versus using all 300s.
Joe Hete
The 200s were available, there wasn’t a sufficient number of 300s that was available anywhere no matter if you wanted to start from day one and since you recall we started the network last fall. In September with the 200s and we’re able to quickly bring those two to the market.
So if you wanted to go 300s you would never got the network off the ground as it started and you'd be way behind where it's at today if that’s what you’re focused on specifically.
Steve O'Hara
Okay. And then I mean it seems like the -- you have made some comment about you know revenue growth in air cargo kind of being nonexistent in general I guess but it seems like your outlook even aside from Amazon is fairly positive, is that true?
Rich Corrado
Yes Steve that is true, I think if you look at the strategy that we’ve developed we have specifically gone after areas of the world where networks proliferate. If you look at our investment in Europe with West Atlantic they now have three dry leased aircraft they are applying for one of the express carriers, our two strong customer in the United States.
We placed one aircraft in the Far East, we're placing a second one that flies in and express networks. So we have specifically targeted given the strength of our asset base where network proliferate around the globe and we've got a good foot fall going forward.
So those markets that are mostly powered by e-commerce but also the growing middle class in some of the developing countries particularly in the Far East are driving a lot of package growth that don't show up necessarily in the overall cargo numbers which tend to track along the whole leg. So we're in a niche market as Joe had pointed out at the beginning that get some solid growth to it and we're taking advantage of it.
Steve O'Hara
Okay. And then last one just on the ACMI pretax, I know there was a couple of you know the pension -- non-cash I think pension expense is up and I'm just I apologize if you’ve mentioned already but you had said that CAM was going to be driver of learnings I think going forward or maybe it was -- yes I think it was earnings and I mean ACMI I would think would become at least breakeven to profitable as the Amazon agreement runs to maturity maybe in late 2017 where you have all the aircraft, all the training and everything done.
Is that reasonable to think that?
Quint Turner
Yes I think -- we as we said in the second half we expect to see improvement and ACMI segment is where you'll see a lot of that -- a lot of this also and we mentioned it in the release has to do with the timing of maintenance. You know we have -- we expense the maintenance for the 767 200 that you know our airline has as they go into check and expenses incurred and the revenue structure it's not a reimbursed structure, the revenues baked in overtime and so the timing of the checks can have a big impact and ours are calendar based but generally you know 18 to 20 months apart and so you’re going to have as we said the mismatch is between revenue and expense in the maintenance line particularly and as you know in this business in the fourth quarter companies generally do not plan to do a lot of the airframe schedule maintenance so that they can preserve the greatest availability for their customer.
But we will see the ACMI segment do very well in the fourth quarter and better overall in the second half as you say.
Steve O'Hara
Okay. And for the 300s you capitalized the heavy maintenance is that right or just on the engine?
Quint Turner
That’s correct, on the 300 it's capitalized and amortized.
Operator
[Operator Instructions]. Our next question is from Adam Ritzer of Pressprich.
Please go ahead.
Adam Ritzer
Just a couple of questions, in terms of your CapEx it looks you're guiding to 290 million, 215 of fleet expansion. So that leaves about 75 million.
Is that kind of your new maintenance run rate with the bigger fleet you have now?
Quint Turner
The lion's share of it would be the maintenance CapEx Adam but there's also other things in there you know buying equipment for example with the Amazon network that we have we're providing ground support equipment so we're having to make investments in things like a pay loaders and things of that nature but you know you got to figure somewhere in that $50 million to $60 million is strictly to maintenance CapEx for this year and--
Adam Ritzer
Okay, so it's up from a few years ago but you know it kind of gives us an idea. Right now I know you said you’ve most of your planes have been bought, you have the conversion slots.
Is there any other call it expansionary CapEx right now for 2017 or will you be done with everything and then the additional five planes that are leased come on in 2017.
Quint Turner
I'm not sure I understand the question, are you asking are we going to have additional growth assets that will put in service in 2017?
Adam Ritzer
No, I'm sure you will find them but just in terms of right now is there anything above the two 90 we’re spending in this 2017?
Quint Turner
You mean in '16 or '17?
Adam Ritzer
What I'm trying to figure out is in terms of your debt levels are going to go up and then they are going to come down as we generate cash flow. I'm just trying to see how much debt you’re going to have at year-end and what you have planned for 2017 now.
Does that make sense?
Quint Turner
Yes, we will be delivering you know the five assets which will be -- at year-end we will have four assets that are in conversion as part of what has to be delivered to Amazon in '17 and then we will have one more that goes in because we have to actually deliver five in 2017 and as we mentioned earlier and as Rich pointed as we have got some demand out there from other customers as well, so we will be putting additional assets in service in 2017 above and beyond that. So I would expect that.
The CapEx spend is going to be somewhere in the same range is what is this year based on what we’re seeing as far as overall demand for assets in 2017.
Joe Hete
And Adam as we said I think in the previous quarter call, we’re sub-three times in terms of our leverage ratio, as far out as we compare to look here. So we’re very comfortable with the debt levels that are created even within the growth assets based into the plant.
And as we noted in our comments Adam, I know something is near and dear to you as we did accelerate the pace of our share buyback program this year as well.
Adam Ritzer
So I guess going forward then even with this level of spending obviously EBITDA is going to be increasing, you’re comfortable running maybe two times maybe above and keep buying back stock to offset the dilution over the next few years and still add whatever, four, five, six planes to grow, does that make sense?
Joe Hete
Yes makes sense.
Operator
We have no further questions. I will now turn the call back over to Joe Hete for closing remarks.
Joe Hete
I want to thank all of the shareholders who took time to vote their proxies regarding the agenda items we will consider at our annual meeting tomorrow morning. We’re expecting a very high participation rate which we regard as strong support for the strategy we're pursuing and the returns we have generated.
Quint and I look forward to meeting with some of you at the meeting tomorrow and with many others in the weeks to come as we grow and strengthen your company throughout the year. Thank you very much for your continued support and have a quality day.
Operator
Thank you. And thank you ladies and gentlemen, this concludes today's conference.
Thank you for participating. You may now disconnect.