Nov 7, 2017
Executives
Joe Hete - Chief Executive Officer Quint Turner - Chief Financial Officer Rich Corrado - Chief Operating Officer
Analysts
Jack Atkins - Stephens Inc Helane Becker - Cowen & Co. David Ross - Stifel Kevin Sterling - Seaport Global Stephen O'Hara - Sidoti & Company Chris Stathoulopoulos - SIG
Operator
Welcome to the Third Quarter 2017 Air Transport Services Group, Inc. Earnings Conference Call.
My name is Jason and I will be your operator. At this time, all participants are in a listen-only mode.
Later, we will conduct a question-and-answer session. [Operator Instructions] Also please note that this conference is being recorded.
I will now turn the call over to Joe Hete, President and CEO of Air Transport Services Group. Mr.
Hete, you may begin
Joe Hete
Thank you, Jason. Good morning and welcome to our third quarter 2017 earnings conference call.
With me today are Quint Turner, our Chief Financial Officer and Rich Corrado, our Chief Operating Officer. We issued our earnings release yesterday after the market closed.
It's on our website, atsginc.com. We will file our Form 10-Q later this week.
I am pleased to report that we achieved our adjusted earnings target for the third quarter and completed our eight consecutive quarter of double digit revenue increases. We remain on a strong growth trajectory, thanks to our key role in air express networks benefiting from powerful e-commerce trends.
With another good peak season well underway and 66 of our cargo aircraft in service, we continue to target $260 million in adjusted EBITDA for 2017 and even more growth in 2018. I have more to say on that shortly after Quint summarizes our results for the quarter.
Quint?
Quint Turner
Thanks Joe. And thanks to all of you on the call for joining us little earlier than usual this morning.
As always, I will 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 airline's ability to maintain on-time service and control costs, the number, timing and scheduled routes of our aircraft deployments to customers, the cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration, fluctuations in ATSG's trading share price which may result in mark-to-market changes on certain financial instruments, 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 will file later this week.
We will also refer to non-GAAP financial measures from continuing operations, including adjusted earnings, adjusted earnings per share, adjusted pretax earnings and adjusted EBITDA. Management believes these metrics 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 third quarter results were again very strong.
We indicated back in August, that those results will look la lot like our second quarter, and that's largely what occurred. Third quarter revenues were $254 million, up $61 million or 31% year-over-year.
Revenues from each of our reportable segments and our other businesses collectively increased compared to the same quarter last year. Revenues from services for Amazon were 45% of the total for the quarter, up from 31% last year.
In August, we dry leased the last of the 20 767 freighters Amazon ordered which we also operate on their behalf. DHL represented 25% of revenues down from 34% a year ago.
Revenues from the US military were 7% of the total versus 12% last year. Revenues from DHL and the military have remained fairly steady but their shares of the total had decreased as business with Amazon and other customers including those served by PEMCO increased.
On a GAAP basis we had loss from continued operations of $28.2 million, or $0.48 per share diluted in the third quarter. That compares with the profit of $2.1 million, or $0.04 per share a year ago.
Once again the changing mark-to-market value of the warrants issued to Amazon had a large impact on our GAAP results. This time however our third quarter GAAP earnings also included a few new items that we are excluding from our adjusted earnings.
On an adjusted basis our EPS from continuing operations was $0.22, a 57% increase compared to $0.14 a year ago. The adjusted EPS calculation this quarter includes 9.9 million shares related to the Amazon warrants, compared with 3.3 million shares in the same period last year.
Adjusted earnings after tax increased 72% to $14.9 million. As in the prior two quarters this year, the quarterly revaluation of the Amazon warrants was the largest adjustment factor, driven by both an increase in vested warrants and a 12% increase in our stock price during the quarter.
The warrants revaluation was $27.5 million greater than a year ago on an after tax basis. Amortization of lease incentive for Amazon was up $5.5 million versus the prior year, also reflecting the higher share price as well as the additional vested warrants.
The largest of the new items was non cash pretax pension settlement charge of which $5.3 million, or $3.4 million after tax was charged to earnings from continuing operations in the quarter. The charge stemmed from annuity purchased in August that will pay pension benefits to nearly 1,200 retirees of ABX Air and reduce our exposure to future financial market fluctuation.
This charge is included in the salaries, wages and benefits line in our consolidated statement of earnings and was reflected in the results of our ACMI services segment. In September, we recorded a $400,000 after tax gain related to our offering of $258.75 million of convertible senior notes and related hedge transactions.
I'll provide more color on that offering and the associated accounting treatment of our hedge transactions in a moment. And finally, we had a third quarter non operating loss of $602,000 after tax related to our share or the Airbus A321 joint venture with Precision Conversions that we began during the quarter.
We expect to continue to have quarterly non operating costs from this affiliate through development and approval of the supplemental type certificate for cargo conversion anticipated in 2019. Our adjusted EBITDA increased 27% to $65.9 million year-over-year which was up $1.8 million sequentially.
That equals $187.1 million through nine months, up 20% from the same period last year. Adjusted pretax earnings increased 58% to $24 million for the quarter, driven by significantly improved financial results from airline operations.
The adjustments are detailed in the pretax earnings summary table in our press release. I noted that our ACMI services segment bore the pension settlement charge on our continuing operations.
Excluding that item, pretax earnings for ACMI services improved by $24 million for the first nine months of 2017 versus 2016. That includes breakeven pretax earnings during the third quarter excluding the pension settlement charge, compared with the $9.7 million loss in the year earlier quarter.
Net of reimbursable ACMI services revenue rose 6% largely on the growth in CMI operations for Amazon since the third quarter last year. CAM, our leasing business had an excellent quarter due to increases in its lease freighter portfolio and related engine leasing and maintenance revenues.
Pretax earnings rose 21% as CAM's externally leased freighter fleet grew by 9 to 47. Eight more aircraft were in modification at September 30 for delivery later this year and in 2018.
Our other activities also remain on a strong growth pace during the quarter with revenues up 45% and up 80% to external customers. Earnings declined however due to the shift in Amazon's air network hub operations from Wilmington to the Cincinnati regional airport back in May, and due to timing of completion of certain aircraft maintenance services.
Cash payment for capital expenditures was $218.8 million through nine months of 2017 mainly for the purchase of passenger aircraft and cost to modify them into freighters. That includes a $159.4 million for the acquisition of five Boeing 767-300 aircraft and two Boeing 737-400 aircraft and associated freighter modification cost, $36.2 million for acquired heavy maintenance and $23.2 million for other equipment.
We expect capital expenditures in 2017 to total about $335 million of which $265 million will be aircraft purchases and modifications. That assumes payments for five more 767-300 in the fourth quarter for conversion and deployment next year.
As many of you are aware, in late September ATSG sold $258.8 million of 1.125% convertible notes which are set to mature in October 2024. Separately the company entered into hedge and warrant transactions that are generally expected to reduce potential share dilution associated with the bonds convertible feature until and unless ATSG's stock price exceed the strike price of $41.35.
A 75% premium to the closing price of share on September 25. The net cash proceeds from the convertible offering after buying the hedges, selling warrants and paying the transaction fees, totaled $234.7 million.
The majority of which we acquired against our outstanding secured revolving credit facility. Until shareholders approve an increase in the company's authorized share count in next year's annual meeting, the notes can only settle in cash.
After shareholders' approval of additional authorized shares the company may elect to settle its obligation in cash, share or in combination thereof. We were very pleased with the strong buyer interest in the financial market as reflected in the low coupon rate we achieved in the investor mix.
The 1.125% coupon along with the proceeds associated with hedges, warrants and transaction fees will result in an effective cash financial cost over the life of the instrument of approximately 2.5%. We have been paying 3.25% on our revolving credit facility.
We view the seven year duration, low fixed coupon and additional flexibility provided by this unsecured instrument to have improved an already strong balance sheet. Beginning in the fourth quarter we will include a non-cash charge and our interest expense associated with the amortization of the convertible feature.
We expect that non-cash charge to approximate $2 million each quarter. Due to its predictability we did not intent to remove it from the calculation of our adjusted EPS.
That's the summary of our financial results for the quarter. Joe is ready to share some outlook comments.
Joe?
Joe Hete
Thanks Quint. As I said earlier, our third quarter was comparable to the good second quarter that preceded it, with very similar revenue and adjusted earnings results.
We are on track to have revenues of more than $1 billion this year which will be a record for us since our business restructuring in 2010. Our ACMI services operations are making steady progress towards profitability.
The $5.2 million pretax loss reported for the quarter was nearly all due to the impact of the settlement charge that we took to annuitize benefits payables to our airline retirees and to a limited extent weather and customer network changes. We are optimistic that ACMI services can finish in the black for the year as a whole after good fourth quarter excluding the pension settlement charge.
One step towards that goal is another award from the US military for the services of our 757 Combi aircraft through the fiscal year ending in September 2018. ATSG has provided us global network service to the military for more than two decades.
I want to thank our airline, maintenance and logistic teams that our kept our aircraft in the air and on time during the hurricanes in Texas and Florida. And during other severe weather elsewhere.
We didn't miss a single assignment in Texas as hurricane Harvey roll through there. In Florida, hurricane Irma caused us about $600,000 across our ATSG businesses.
That included downtime at PEMCO's MRO operation in Tampa, plus a missed CMI and ACMI service in and out of Florida most of which were cancelled due to our customers' request. We are fully staffed with flight crews for the level of service our customers anticipate and we expect significant fourth quarter increases in variable CMI revenues from aircraft fully deployed in our customers expanding air networks during the holiday season.
We even add one 767-300 to our ATI airline fleet to support superior service reliability for our CMI customers. CAM is delivering solid results as its leased aircraft fleet expands and customer deploys them.
That includes the last of the 20 Amazon aircraft we delivered in August. We are continuing to purchase more 767s this year for conversion slots we've reserved through mid -2018.
We expect to complete deliveries of five freighters in the fourth quarter including two 737s going to West Atlantic, plus at least eight 767-300 next year. I won't rule out more fleet investments later in 2018 although the number will depend on customer commitments.
In our other businesses including our AMES and PEMCO MROs are tracking more scheduled aircraft maintenance work from Boeing and Airbus aircraft operators including major passenger airlines. We expect more profitable growth in 2018 and beyond as airfreight claim a bigger share of overall cargo volume to achieve ever faster e-commerce deliveries.
As we talk about our growth, investors often ask about the cost and future return on additional 767 conversions given the tightening market conditions. As world's largest owner and operator of conversion 767 freighters, we have a decade of achieving good return from leasing them by acquiring the right aircraft at the right price and flying and maintaining them in a manner that adds more value to the customer.
We think that those advantages plus the range of operating and technical services we have to support them make us leading candidate for anyone seeking additional conversion 767s to build out their own networks. At the same time we see opportunities in the narrow body converted freighter market including the niche that PEMCO is serving with 737s for customers in China and elsewhere.
And the demand for somewhat larger narrow bodies that our new conversion joint venture with Precision will pursue with Airbus A321. So for the further near future we will focus mainly on the mid sized freighter market where we expect good growth to continue for many more years.
Quint mentioned the pension annuity and a convertible debt offering. Two significant transactions we completed during the quarter that are designed to keep our balance sheet strong, lower our risk and assure our access to capital as additional opportunities come our way.
As of today, we have customer commitments to lease all but two of the 11 freighters that will become available between September 30th this year and the same date 2018. Contributions from additional lease freighters next year, plus a full year return from those we deployed in 2017 make it clear that 2018 will be another year of solid growth, following our projected 23% increase to $260 million in adjusted EBITDA this year.
We continue to deploy most of our free cash flow in fleet expansion and expect that will remain the case in 2018. In the meantime, our stock prices risen significantly year-to-date which we think speaks to your support for our capital allocation decisions.
We did not repurchase shares during the third quarter, we remain open to doing so on an opportunistic basis while we also explore new ways to support the growth story that we think is still in its early stages. That concludes our prepared remarks, Jason.
We are ready for the first question.
Operator
[Operator Instructions] And our first question comes from Jack Atkins from Stephens.
Jack Atkins
Hey, guys, good morning and congratulation on a solid quarter. So Joe I guess let me just start with you and here and you brought up returns on incremental investment opportunities and just sort of curious if you can maybe flush that out a little bit in terms of your thinking.
Are you seeing the conversion cost and the service cost on the mid-sized 767 freighters sort of coming back in line to sort of what you guys have historically targeted. And, if not, are you seeing customers willingness to maybe pay a bit more than they have historically to make sure that everyone is getting the appropriate return under that asset?
Joe Hete
The conversion cost itself Jack is pretty much a fixed price and we have to have pre negotiated for any additional conversion we will do at least through the end of 2018. But it's really about the feedstock pricing at this point in time.
And it's still pretty tight market from that perspective. Again, different customers have different preferences in terms of whether they are willing to accept a 1988 vintage aircraft versus say 1995 vintage.
Some will pay up, some won't. It's really dependent upon the individual customer and their view.
If you look at the newer younger piece of feedstock you are going to have probably lower maintenance cost as they are usually willing to pay up a little bit for something let say a younger airframe overall. So we continue to look at the market to see what the customer preferences are and where pricing is for that feedstock at this point but it's still little bit on the tight side.
Jack Atkins
Okay, got it. And shifting gears to the A321 joint venture which I think it is really pretty exciting as you look out into 2019 and beyond.
I know just sort of curious if you can give us an update there. I think you and your joint venture partner signed a launch customer for that aircraft and I guess how should we be thinking about that impacting the P&L?
And when would you expect that to start showing up in 2019? Could it be a meaningful contributor in 2019 or is it really more beyond that I guess.
Joe Hete
Yes. I think if you look at it from a standpoint of the cost associated with developing the STC with Precision and of course our launch customer you mentioned is Valair.
You are going to be looking on the order magnitude of maybe about $2 million to $2.5 million a quarter potentially for our share of those cost at least through part of 2018, and should start to taper off we believe in early 2019. You probably won't see any significant contribution from the actual sale of and conversion of 321 probably until latter part of 2019, if gets it done sooner that would be great but these things are pretty long drawn out projects to get the appropriate certifications specially when we are going for both FAA and [Indiscernible] at the same time.
So I'd see the 321 be in a contributor to latter part of 2019.
Jack Atkins
Okay, that's helpful, Joe. And the last question I'll turn it over.
Could you give us an update on the joint venture, your progress in China, it seems like that - that sort of hit some snag which is not totally surprising but just sort of curious to where that stands and are there some other options that you guys could perhaps pursue there to sort of give you access into that market over time.
Rich Corrado
Yes. Jack this is Rich.
Thanks for the question. Yes, as we've reported last quarter the joint venture is more or less stalled in regulatory approvals.
In fact, I am heading there over next week to meet with our joint venture partners and we are discussing other alternatives and other options within China. Keep in mind the PEMCO acquisition that we made earlier in the year was a significant entry into China because they already had an established business there.
They have over 75% market share in the 737 conversion within China. A lot of those were 737-300 which are starting to get into the latter years.
So one of the things we are working now at PEMCO as we've announced is the 737-700 Flex Combi which will also have a freighter component to it. And that will be a direct replacement opportunity for all those 737-300s within China.
So we feel like we've got strong opportunity in business in China now as an entry but we are still committed to the strategy that we initially set on out with the joint venture partners which is to get an operating platform within China similar to what we did with West Atlantic in Europe.
Operator
Thank you. Our next question comes from Helane Becker from Cowen & Co.
Helane Becker
Thanks operator. Hi, guys, thank you very much for the time.
So just a question on 767s, I know Boeing is talking about potentially redoing the line, reopening in line, and I am just kind of wondering if you would have interest in new 767s.
Quint Turner
No. We don't see the value for at least in our business in terms of going after a new freighter.
The returns just aren't there. The converted freighter pretty much does the same thing as a brand new one and basically a third of the cost.
So just doesn't make sense for us to get into that line of businesses as far as going for new ones. There are a lot of rumors out there as to whether they are going to up the line up again but until such time that Boeing puts out an announcement and says they are actually going to do it, no, I guess we'll just take wait-and- see attitude.
Helane Becker
Okay. And then just on the hurricane impact again.
I got a lot of questions on that this morning. So the only impact you really saw was the $600,000 that you highlighted right.
There was no impact from Harvey in Texas.
Quint Turner
No. We didn't really experience any loss in the Texas side.
If you look at the amount that we lost because of Irma, about half of it was from PEMCO having to shut its door for couple of days and a part of a roof came off but it really didn't impede the operations once people were able to get back to work. And of course we have couple of freighters that are based in Miami that flied out into the Caribbean and those were the ones were impacted from the ACMI side of the equation.
Operator
Thank you. Next we have David Ross from Stifel.
David Ross
Yes, good morning, gentlemen. Question on the different plane types at CAM, 767 and the 737.
I would assume that 737 generate less revenue on a dry lease but on the pretax margin the same better or worse than the 767?
Quint Turner
They are very similar. It's just as you said Dave it is about roughly a third of the investment.
So you can pretty much factor all the metrics down by that amount versus the 76.
David Ross
Okay. And then looking at the CAM segment, why did average revenue per plane jumped up 15% year-over-year when the number of planes only went up about 3%?
I am curious what the variability was?
Quint Turner
Right. I mean we had - of course we did have more aircraft when you look at the amount of leases that were out there.
But we also we had some contribution from revenue and leasing spare engines as well as maintenance revenues for CAM customers that contributed during the quarter and some of that is dependent a little bit on timing. It can be little bit lumpy in terms of when those items impacts results.
David Ross
Okay. And then in the other activities line as well, doesn't look like it was much of a pattern or seasonality to those numbers.
You talked about having a mixture of your maintenance revenue and cargo handing. What was the rough percentage breakdown if you were to look at that line item?
Is it mostly cargo handling with a little maintenance? Is it mostly maintenance with cargo handling?
How do you look at that?
Quint Turner
Yes, certainly the mail and sort of package handling piece is about -- it's the majority of the total customer revenue. Aircraft maintenance, modifications and part sales would be roughly about 20% of that and then the other services that are covered in that line such as ground equipment and facility are much smaller percentages.
But I would -- the vast majority of that is the mail and package handling services we do for Amazon. And big part of that Dave is it's a cost plus arrange for our handling to getaway operations for Amazon.
So as they open new location and new aircraft coming into play. But that's on a low fixed single digit margin as opposed to on a comparable year-over-year standpoint.
Remember, we were running the hub operation here in Wilmington as well as those gateways a year ago. The other thing to keep in mind Dave is that for the maintenance fees we've recognized those revenues when the projects, customer projects are completed.
So some of that again is impacted by the timing of completion of those projects. So for example at the end of third quarter I think there was a relatively large amount in the balance sheet for projects that were yet to be completed but will be completed in the fourth quarter for the maintenance group.
So for example those contributors will show better results in the fourth quarter, whereas Joe mentioned on the logistic fees, the packaging handling fees which is the majority of the revenue, it's pretty much a steady, low single digit type contribution that we get out of that.
David Ross
Okay. Because I mean you go from say about $90 million in revenue in the first quarter, jumped up by $25 million and then comes back down $20 million, again jump up I guess again in the fourth quarter due to more flying some more package handling --
Quint Turner
And remember that and included in there was the transfer of the main hub operations for Amazon we had in Wilmington up until May and then that was transfer to Northern Kentucky Cincinnati hub operation. So we lost that piece.
At the same time, some of the gateway operation improves the level of operations in those facilities, the origin point in the Amazon system. And of course you also got PEMCO this year which we didn't have last year.
So there are several contributors there that make up that other activity.
David Ross
Okay. So is a $100 million a better run rate than $120 million on a quarterly basis?
Quint Turner
Yes.
David Ross
Perhaps [Multiple Speakers] okay, so I know how you are looking at it in terms of the volatility and it should be smoother or is there some seasonality that suppose to make --
Rich Corrado
There will be some seasonality in the gateway side was the peak season coming up but -- and the postal side as well. So you'll see some but as Quint said one of the things that you see is a lot of things from the maintenance side of the equation will get hung up on the balance sheet until such time the projects are completed.
And if you look at that segment of course, half of that $600,000 we talked about earlier was because PEMCO was shut down for a few days which had a negative impact on the results for that segment during the quarter.
David Ross
Well, certainly glad that got back up and running quickly.
Rich Corrado
Yes, and everybody came through in fine fashion.
Operator
Thank you. Next we have Kevin Sterling from Seaport Global Securities.
Kevin Sterling
Thank you. Good morning, gentlemen.
As we think about utilization with some of your large customers, I think in Q2 a dipped a little bit, maybe little bit in Q3. Have you seen that utilization -- those utilizations level pick back up here in October and early November?
Quint Turner
Yes. If you look at the block hours Kevin, second quarter to third quarter as we mentioned on our August call, the things were actually down a bit second quarter versus first.
And of course it stayed down way through the third quarter I mean total in terms of block hour utilization. But as we move into September timeframe which is traditionally when you start to see growth overall going back to our days as a suburb airborne, we start to see the block hours pick up.
Peak season schedule went into effect or go in to effect this week. I mean so we should see some significant increase in the overall block hours for November and December.
Kevin Sterling
Okay. So it's kind of with the strong peak season, obviously you are definitely seeing that this level to pick up, is that fair to say?
Quint Turner
Yes.
Kevin Sterling
Okay, cool. And how many block hours, you mentioned block hours, how many ACMI block hours did you guys fly in the quarter?
If you don't mind sharing with us.
Quint Turner
22,155 block hours in the third quarter.
Kevin Sterling
Okay. So an increase of I guess roughly 8% is that --
Quint Turner
Yes, year-over-year basis yes about 8%.
Kevin Sterling
Okay. Joe you mentioned in your prepared remarks, I am really encouraged to see ACMI services being in the black now.
As we think about ACMI services for 2018, should we assume continued profitability in that segment in 2018 as well?
Joe Hete
Yes. We look forward like we say got through the gear up for the Amazon side.
Not to say that if somebody else came along and Amazon want to increase market leading pre utilization et cetera where we have to do lot of hiring and training then we would not want to see that as a positive but overall we look at 2018 we expect to see continued profitability in that segment going forward.
Kevin Sterling
Yes. Obviously that would be a good problem to have Amazon or anyone else came to you for some additional lift right?
Joe Hete
It definitely would.
Kevin Sterling
So speaking of that let me just kind of ask you big picture, you mentioned rolling out more fleet investment in 2018. I think you've taken delivery of 3 in Q4 and then I believe 8 in 2018 and you maybe even have more bump beyond that.
So as the cost that you guys get today kind of given the tightness in the market and where we are, are you getting calls from existing customers call and say, hi, I need more lift or maybe is it a new customers like hey, I am looking to enter into ACMI or CMI arrangement with you, new customers you had never talked before. If you could share us with some of those discussion you are having and opportunities that you see as you think about 2018 and beyond with maybe new customers and even existing customers.
Rich Corrado
Yes, Kevin, this is Rich. Thanks for the question.
Yes, we are seeing both actually. A lot of the deployment we've got in 2018 is with existing customers although we are schedule to deliver two aircraft to a new customer in Asia.
But we are getting calls not only from airlines but from non airline companies that are looking to put up aircraft in a network situation that we've never got calls from before, some logistics happening. Additionally, there were some companies that some airlines I should say in parts of the world that have been retrenching on their freighters.
They had been parking them the larger one and they also had mid range freighters. And it looks like they are going to be adding to their mid range fleet.
So they are putting up a network, if you will or solidifying a network in different parts of the world while at the same time getting out of the longer range freighters going forward. We got a couple of customers in that block.
So we are not only getting new airline customers inquiring about 767, we are also getting non traditional participants, if you will from the logistic space looking in. And we've got very strong demand from our existing customers' portfolio.
Kevin Sterling
Wow, that's great and exciting. So, Rich, let me explore that little bit more.
When you say kind of non airline customers, assume kind of what Amazon -- what you guys are doing for Amazon it's kind of raised awareness if you will in the logistics community and really everyone else. Are those people taken notice as to kind of the service and the value add that you are providing for the likes of Amazon calling maybe don't need something that big but those opportunities is that what you are talking about and maybe like you said getting calls from those non traditional airline companies kind of something that you are doing with Amazon something similar or --
Rich Corrado
No, it's not, nowhere near that size or scale, Kevin. I mean keep in mind that the scale that Amazon has is significantly larger.
I think the next somewhere or 10 or 15 e-commerce companies globally don't equal the size of Amazon from a package volume standpoint. Now these are companies that are in businesses that have specific supply chain flows and needs and are much smaller portfolio where they are looking for capital solutions as opposed to relying on traditional belly space or trying to buy space on main deck freighters.
So looking from our dedicated solutions mainly to pickup service and dedicate service in more in a supply chain dedicated to manufacturing or distribution environment.
Kevin Sterling
I got you. So kind of as this growth in airfreight if you want to call it the need for speed and express service offerings, companies are coming to you guys looking for ways that they can participate and capitalize on kind of some of the dynamics we are seeing in the market.
Is that fair to say? Is that right?
Rich Corrado
Yes, that's a good summary.
Kevin Sterling
Okay. And Joe last question you talked about obviously you guys are excited about the growth you see in 2018 and opportunities.
Is there anyway you possibly maybe just ballpark growth opportunities? We are looking at 20% plus in potential EBITDA growth for 2018, anything you ballpark there for us as you think about all the opportunities you have on the horizon.
Joe Hete
Kevin, as you know, we usually give our guidance for 2018 when we do our year end results so stay tuned for late February or early March.
Kevin Sterling
Or maybe dial back in next year.
Joe Hete
Dial back in, we missed if you didn't.
Kevin Sterling
I know, you can't play [Grabatron]
Joe Hete
But we will be prepared to present.
Operator
Thank you. Next we have Stephen O'Hara from Sidoti & Company.
Stephen O'Hara
Hi, good morning. Based on a question earlier maybe I missed a comment but I mean the returns you are getting from your investments are they declined because of the scarcity of asset or are you able to kind of pass that along to customers?
Quint Turner
Yes. One thing to keep in mind is the assets we are putting in service now we were as we've said in the past pretty proactive in terms of locking up access to this, the aircraft that we are taking even now.
And so I think that those required certainly at a value that perhaps didn’t reflect some of the appreciation that we see in feedstock sensing. So we do expect to achieve our returns certainly on the all aircraft that we will place into service in the next year, Steve.
In terms of beyond that I think what Joe is saying simply that feedstock maybe such that some customers may have a desire for a little newer feedstock which will require a little bit of higher entry cost and that can be handled in a lot ways with a customers. Sometimes you may get those aircraft leased for a longer period of time or they may simply pay more for the same duration lease.
But in either case we have a ROIC target that we are -- we strictly adhere to in terms of our investments into those aircraft. [Multiple Speakers]
Stephen O'Hara
And so you are passing that along. I am sorry I interrupted you, go ahead.
Joe Hete
I was just saying we expect to continue to achieve it.
Stephen O'Hara
Okay, all right. So I mean I can understand if some customers ask 20 aircraft or stuff like that.
Maybe you want to discount or something like that but I guess on ones and twos here and there you try to pass those cross along and either through a -- is it a more secured lease or longer term ACMI agreement or would it be kind of more similar to the A plus CMI arrangement?
Joe Hete
Well, you get a variety but I think a lot of the customers that once you get outside of Amazon and DHL and that we have interest from for aircraft, it's typically just a dry lease. We may not be operating although typically we are extending maintenance services to those customers and other support service but the operation for the most part for these customers is they are handling that.
Stephen O'Hara
Okay, and then now I know I think you would not really been too receptive of the restarting of the 767 or didn't seem to see any benefit. Would it benefit you in that maybe feedstock could become available if carrier could get their hands on a newer 767 or parts and engines and that kind of thing?
Does that help or is that already kind of plentiful?
Joe Hete
I think if you look at the Steve, first and foremost if they start up additional capacity for building new 767s you are probably looking at couple of years out before you start to see delivery of those aircraft. So there would be a period of time in between where people if they still had a need would have to go to the converted freighter side of the equation but I think you are talking about two different markets there in terms of what we leased to people on a converted freighter basis versus somebody who had to capital wherewithal to afford to buy new ones as I mentioned earlier, they are almost three times as much.
So if you look at FedEx or UPS, they are the kind of people who might buy new potential I guess Amazon could but in the segment that we play and it's still going to be the converted freighters.
Stephen O'Hara
Okay. But I mean in terms I mean might it shakes some loose down the road from a maybe a passenger standpoint where maybe passenger operator says, there is new one out there I'll take that as post operator [Multiple Speakers]
Joe Hete
No. I don't think if they start, I don't think they are going to do with passenger out because then they are cannibalizing some of the business associated with 787.
It would strictly from a freighter demand perspective. Keep in mind the military tanker which is the pacing item here is basically a freighter with the ability to refuel airplanes to save time.
Stephen O'Hara
Okay, okay and then okay in terms of the aircraft commitments you have right now. I think you expect to have eight in mod or waiting mod right at the end of the year.
And you don't have any firm commitments or any -- I mean do you have any kind of -- how many do you have lined up maybe for 2018 right now?
Joe Hete
As far as different acquisitions, none beyond the eight we referenced already.
Stephen O'Hara
I mean would you be surprised I mean my guess is you would surprised if you didn't make any in 2018 but do you see -- is there a range you think is relatively comfortable from a CapEx standpoint where you -- if you bought less than 3 or more than 10 you would be surprised something like that.
Joe Hete
Yes kind of what we said in the past as we look at the marketplace, we anticipate that there probably somewhere around 4 to 6 additional tails a year that we would anticipate, we would be able to place into the market but obviously we are going to take that as go, and again still got to go back to can we find the feedstock at the price that we hits our price point as far as returns on capital once we get thing through the modification process.
Operator
Thank you. Next we have Chris Stathoulopoulos from SIG
Chris Stathoulopoulos
Good morning, guys. I was wondering with your competitor Atlas and the situation they are having with their pilots and the alleged work slowdown.
Having gone through that with ABX last 4Q, if you could give your perspective on that but more so if there is a potential to pick up some share there or if any of the customers DHL or Amazon have approached you about service levels?
Joe Hete
So if they did we wouldn't talk about anyway and discussed what the current business climate is with our potential customers or their existing customers. Certainly the strike we had last year was something we don't anticipate a repeat of this year and while Amazon had its issues or Atlas had its issues with its pilot force, to our guys credit, our guys continue to fly the airplanes day-in-and-day-out and maintain the service levels we expect to give to our customers.
All of us are in negotiations at this point both ABX, ATI and Atlas. So we are just going to continue to go through the process.
They're all under the auspices of National Mediation Board. And as was noted last year the strike was determined to be illegal strike at that point and we don't anticipate as I said earlier having the same thing occurred in this year.
Chris Stathoulopoulos
Okay. And then the eight planes in mod by this year end.
How many deals are locked in and what's the timing of deployment with those?
Rich Corrado
There are six; this is Rich by the way. There is six aircrafts out of the eight that have signed agreement in cash deposits down.
And two of those delivered -- two delivered in the first quarter, three delivered in the second quarter and the remaining three delivered in the third quarter. And that two that we have that are available delivered in the third quarter and we've got multiple airlines interested in those items.
I am very confident we'll get those deployed hopefully by the end of the year.
Chris Stathoulopoulos
Okay. And last one, my apologies if you gave this before.
What was the block hour trend for the quarter and above minimum fly time?
Quint Turner
So on quarter-over-quarter basis the block hour were flat over the third quarter last year we were up 8% overall.
Chris Stathoulopoulos
Okay. And do you have a number for in terms of flying above the ACMI or CMI minimum?
Quint Turner
We don't have. None of our contract has the minimum guarantee so to speak attached to it where if we fly above minimum is changes things.
Ours is predicated on for our large customers are fixed plus a variable. So they more they fly the more we get the variable piece but there is no minimum guarantee.
We have no further questions. Mr.
Hete you can give your closing comments.
Joe Hete
Thanks Jason. We are looking forward to a good fourth quarter with more aircraft in our fleet and customer schedules so we will keep them busy throughout the holiday peak season.
Rich and Quint are leaving shortly for New York where they will offer more perspective on our third quarter and outlook at the Stephens' conference tomorrow. Thanks for your support.
Don't forget to vote today and have a quality day.
Operator
Thank you, ladies and gentlemen. This concludes today's conference.
Thank you for your participation. And you may now disconnect.