Greetings. Welcome to the AerSale Fourth Quarter Earnings Conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I'll now turn the conference over to your host Christine Padron. You may begin..

Good afternoon. I'd like to welcome everyone to AerSale’s fourth quarter 2020 earnings call. Conducting the call today are Nick Finazzo, Chief Executive Officer and Martin Garmendia, Chief Financial Officer.

Before we discuss this quarter's results, we want to remind you that all statements made on this call that do not relate to matters of historical facts, should be considered forward looking statements within the meaning of the federal securities laws, including statements regarding our current expectations for the business and our financial performance.

These statements are neither promises nor guarantees, but involves known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results.

Factors discussed in the risk factor section of our final perspectives filed with the SEC on February 10, 2021 and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward looking statements on this call.

We'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of those non-GAAP metrics to the nearest GAAP metric can be found in the earnings presentations materials made available on the Investor section of the AerSale website at ir.aersale.com.

With that I'll turn the call over to Nick Finazzo..

Thank you, Christine. Good afternoon to everyone on the line and thank you for joining our call today. I’m pleased that today marks our first quarterly update as a public company and I look forward to updating you each quarter on the exciting progress we’re making at AerSale.

Before digging into the results for the quarter and business updates I’d like to take a few moments to familiarize new investors with AerSale, and I’ll begin with three attributes about AerSale that position us to create value for our customers and deliver leading shareholder returns.

First, we operate a purpose built, fully integrated, multi-dimensional aviation after-market company that enables us to serve as a one-stop shop for our customers. This includes activities like part procurement, full aircraft sales and leasing, MRO, FAA certifications and aircraft storage and decommission.

This allows us to keep a close pulse on the market, identify asset acquisition opportunities, and deliver a higher overall value to our customers. Second, we generate attractive financial returns as a result of this integrated structure with the flexibility to pivot quickly and execute regardless of the economic backdrop.

This was never more pronounced than in 2020 when the global pandemic adversely affected commercial aviation to a degree, no one in the industry had ever experienced.

Notwithstanding this environment, we were able to pivot quickly to high demand freighter aircraft, help our customers through our aircraft storage and decommissioning business, identify attractive long-term asset acquisition opportunities and enter 2021 fully positioned to resume our growth trajectory.

This was a truly remarkable result and demonstrates the resiliency of our business and workforce. And so, our integrated structure enables us to serve as a unique partner to airlines and original equipment manufacturers to bring new and innovative products to market in our Engineered Solutions business.

Currently, we have three projects in our Engineered Solutions pipeline that include AerSafe, AerTrack and AerAware that collectively represent a significant market opportunity for AerSale. Our greatest opportunity is with AerAware that is now complete, fully operational, and is scheduled for pre-certification testing by the FAA commencing March 23.

AerAware incorporates an advanced military style head wearable display. In other words, a flight vision goggle that provides pilots with enhanced vision, enabling them to see through adverse weather conditions with an overlay of critical flight deck information.

We've been developing AerAware over the past 18 months in partnership with Universal Avionics, a subsidiary of Israeli manufacturer ELBIT Systems to deploy existing military aircraft technology to commercial aviation. This relationship underscores the AerSale value proposition.

Our teams successfully integrated a military application with advanced technology into a commercial platform from concept to full integration in a working Boeing 737 NG prototype aircraft.

We use our engineering knowledge and capabilities with midlife equipment to integrate the technology, conduct flight certifications, and demonstration and marketing support to potential key customers.

To dig into the specifics of our business, we have two primary operating units, Asset Management Solutions and Technical Operations, or which we refer to as checkups.

In our Asset Management segment, we supply use serviceable material or use end parts as well as whole aircraft and engines to the marketplace, including highly customized, fully supported leases of aircraft that have gone above market lease rates as well as ready to install short-term engine leases, which also command a rate premium.

At the end of their leases, this flight equipment becomes the feedstock for our USM parts business providing the final revenue stream and our value extraction methodology. In our TechOps segment, we provide maintenance, repair and overhaul services and oil services and Engineered Solutions.

In our MRO services divisions, we perform aircraft heavy maintenance including passenger to freighter conversions at our two aircraft MRO facilities include your Arizona and Roswell, New Mexico.

Further, we overhaul airplane components including landing gear, pneumatics, hydraulics and composite aerostructures at our facilities in Rio Rancho, New Mexico; Memphis, Tennessee, and Miami, Florida.

In our Engineered Solutions division, we develop highly specialized products that comply with regulatory mandates and or enhance the safety of commercial aircraft. As previously noted, we're currently marketing three products AerSafe and AerTrack for which we hold supplemental type certificates. In other words, STCs issued by the FAA and AerAware.

Our existing STCs have enjoyed strong margins and all of our STC products will serve a customer base of over 16,000 aircraft. As we review our business results there are a few important things to keep in mind.

First, we generally do not utilize year-over-year analysis on a quarterly basis to assess our financial performance, which you'll notice throughout our commentary. The rationale for this is simple.

Our asset management acquisition and whole asset sale businesses are cornerstone of our success and account for large transactions at regular intervals throughout the year. As we discuss our results, we'll make it a point to update our investors on these key transactions for both the current year and prior year periods.

More improbability, we believe relevant indicators for our business performance, our asset acquisitions and activities, the outlook for whole asset sales throughout the year, progress on engineered solutions STC development and contracts, and underlying performance of our MRO business.

Turning to our results for 2020, we delivered full year revenue of $208.9 million, which compares the full year 2019 revenue of $304.2 million was the decline in total sales stemming from the impact of COVID-19.

As the year progressed, our business began to recover nicely, which led us to increase our forecast, as we started to realize higher contributions from our freight customers, strong growth in our aircraft storage and MRO business, and even some modest improvements from passenger aircraft customers.

For the full year 2020, we reported adjusted EBITDA of $51.9 billion or 24.8% of sales, which compared to full year 2019 adjusted EBITDA of $56.9 million or 18.7% of sales. As a reminder to investors, adjusted EBITDA results in 2020 included $12.7 million of CARES Act benefits.

Looking at trends in our business and beginning with asset management, sales of aircraft and engine parts continue to improve in the fourth quarter, which increased in each sequential quarter since the low set in the second quarter of 2020.

We expect activity in these categories to continue to grow as volume across the system gradually increases back to pre-pandemic levels. Aircraft and engine leasing decreased in the fourth quarter, primarily due to the expiration of three Boeing 747 passenger aircraft leases.

The engines were removed from these aircraft and the ones in both conditions are being prepared for the lease pools with the remainder becoming a feedstock for our USM parts business, as we take advantage of strong demand in this platform from prior customers.

This reduces our aircraft fleet to just aircraft to passenger and to freighter, both of which have been performing well. Finally for 2020, we had only $3.1 million of whole asset sales, which occurred early in the second quarter as compared to $70.1 million in 2019.

This decrease in sales was a direct result of the pandemic and represented the majority of our revenue declined as compared to the prior year.

As we look ahead to 2021, we're well positioned with cash on hand and an undrawn recently up-sized $150 million credit facility to restock site equipment for our unique style of hybrid aircraft and engine leasing.

This is exemplified by our recent purchase of 24 Boeing 757 that we're marketing as freighter conversion aircraft to satisfy heightened demand in this category. The Company has assigned better intent to sell 4 aircraft to an international customer, which is expected to close over the next 30 to 90 days.

We expect to sell the majority of our Boeing 757 fleet in 2021. To facilitate these deliveries, we expect to convert at least five of these aircraft at our Goodyear hangar over the next year with the first converted aircraft projected to be completed in May.

With five aircraft committed to conversion, we have primed to meet the growing demand for Boeing 757 freighters. In our TechOps segments, we continue to experience robust demand for aircraft MRO services and our facilities running at or near capacity.

Volume at our Goodyear Roswell storage facilities hit record highs in 2020, which resulted from a higher number of grounded aircraft by airlines and leasing companies during the pandemic.

We expect the strong volumes to continue through 2021 as we benefit from a full year of storage activities at both of our dry desert storage locations, which includes reactivation work from existing customer aircraft and continued work for additional aircraft entering storage progress.

Looking forward, as these aircraft are brought back into service, we expect our storage revenue to gradually decrease but be offset by reactivation revenue in our aircraft MRO facilities. Moving to our Engineered Solutions business we had modest sales in 2020 due to the unprecedented number of aircraft on the ground.

In the fourth quarter, we saw a pickup in demand for our AerSafe products, as aircraft repositioning to new markets.

In addition, we made significant progress towards obtaining FAA certification of our AerAware product having completed over 60 flight hours with an FAA designated engineering representative, a DER, test pilot performing our test flights and showcasing the capabilities of this product to a potential customer.

As mentioned previously, we will begin FAA test flights in less than two weeks, which is a prerequisite to the FAA issuing AerSale an STC for AerAware. Based on feedback from airlines test pilots who have flown our Boeing 737 NG prototype aircraft with AerAware installed, we expect to receive a launch order from a potential customer this year.

In summary, we're pleased with where we are positioned as we begin 2021, AerSale’s first full year as a public company.

Demand in our aircraft MRO facilities is robust, volume is poised to suddenly improve for USM parts and the market is offering attractive feedstock opportunities added to that we're enthusiastic about the prospects for our Engineered Solutions STCs, which we expect will be a meaningful growth contributor to our overall sales mix as this division continues to evolve.

We exited 2020 with a strong balance sheet and ample financial flexibility to fund our capital allocation priorities. I want to thank all our investors, and we look forward to updating you on our progress throughout the year. Now, I'll turn the call over to Martin for a closer look at the numbers..

Thanks Nick. I will start with an overview of our financial performance before ending with an update on our guidance. Our fourth quarter revenue was $49.4 million, which did not include any whole assets sales. This compares to the fourth quarter 2019 revenue of $120.9 million, which included $57 million of whole asset sales.

As Nick mentioned, our business will fluctuate quarter-to-quarter based on whole asset sales during the period and therefore it is important to monitor our progress based on asset purchases and sales over a longer period. As you look ahead to 2021, our most notable asset is a purchase of the 24 Boeing757 that we announced in September.

We are working diligently with our customers to finalize the first of these sales, which we expect to occur in the next few weeks.

In addition to asset sales, Used Serviceable Material or USM parts revenue declined as opportunities to buy feedstock did not materialize and demand for existing inventory decreased, utilization rates on our flight equipment also dropped against the backdrop of the COVID-19 pandemic.

The pandemic led to the grounding of a significant portion of the global passenger fleet and lower passenger air travel resulting in decreased demand for USM parts used for maintenance and overall activity and short term engine leasing.

Our TechOps segment offset some of the decline in our asset management solutions volume with total segment revenue up 41% compared to the fourth quarter of 2019 to 32 million. The increase in TechOps revenue was largely driven by aircraft MRO services, as this business benefited from increased storage demand.

It drives desert locations of our heavy MRO facilities in New Mexico and Arizona allowed us to monetize on the increased demand for aircraft storage maintenance programs.

Looking forward, we expect a substantial quantity of aircraft that are on airport MRO facilities to provide us with upside opportunities for reactivation work, heavy maintenance and cargo conversions and also providing us a strategic advantage and identifying feed stock for our Asset Management segment.

The revenue split between our Asset Management and TechOps segment was approximately 50:50 in 2020, as the business mix changed as a result of the pandemic. This change in mix demonstrated our ability to respond effectively to changing market dynamics. As the passenger aviation market recovers, we expect both asset management and TechOps to grow.

Gross margin was 26.6% in the fourth quarter of 2020, which was approximately the same level as the fourth quarter of 2019, as all the measures we took during the year translated into efficiency and cost savings across our business lines.

Selling general and administrative expenses declined 50.5% in the fourth quarter of 2020 to $50 million, primarily due to COVID-19 cost savings initiatives. Net income for the fourth quarter of 2020 was $0.6 million compared to $9 million for the fourth quarter of 2019.

Cash flow using operating activities was $12.2 million in 2020 compared to $45.5 million in 2019. The main driver of cash utilization in 2020 was net inventory purchases of $55.3 million, primarily related to the Boeing 757 transaction.

At year end, AerSale had approximately $29 million of cash on its balance sheet and an undrawn revolver of $110 million, which has now been increased to $150 million. This provides us with ample financial flexibility to fund our asset acquisition priorities in 2021 and beyond. Finally, our guidance update summary.

We expect revenue of $340 million to $360 million and adjusted EBITDA of $60 million to $70 million in 2021.

This outlook reflect the increase in activity in our asset management segment, continued strong demand for our airport MRO services, accelerating demand in cargo and e-commerce markets, and increased requests for passenger to freighter conversions and other TechOps products and services.

The main growth driver of the Asset Management segment will be the monetization of the Boeing 757 package secured in 2020. Because of the strong demand for cargo conversion aircraft, we project selling the majority of the available aircraft in 2021.

For TechOps, in addition to the continued contributions from our storage maintenance and component MRO activities, we also expect to commence sales of our AerAware products in late 2021.

Our projected ranges for 2021 possible delays in the start of sales for AerAware due to uncertainties regarding the pace of initial production scale-up that company is diligently working on solutions that will allow us to meet the anticipated demand for this product, for my potential launch customer.

Lastly, CARES Act land proceeds of $9.2 million were awarded for the Company in 2021. In summary, our strong financial performance is the result of the multi-dimensional and fully integrated business model we have spent the last decade building. Post-COVID, we made adjustments, but continue to invest in business units experienced the greatest demand.

The diversity of our revenue sources has created a countercyclical hedge enabling AerSale to thrive in a challenging commercial aviation market. We believe we are well configured to outperform our competitors in the upcoming recovery. With that, operator, we are ready to take some questions..

At this time, we will be conducting a question-and-answer session. [Operator Instructions] First question comes from Gautam Khanna with Cowen. Please proceed with your questions..

Thanks guys. Good afternoon. I was wondering if you could talk a little bit about the 757 turnarounds. So you mentioned the four that might be sold. I would imagine, maybe it's Q2, but if you could talk to the rest of the quote majority that you expect to sell this year.

Do you have letters of intent for those? Just kind of how firm is that planning? What gives you that conviction? And if you can maybe talk to the timing, is it going to be Q4 weighted, just based on what needs to be done with them et cetera?.

So, we've got a comment -- hi Gautam, how are you doing this afternoon? So, we've got a combination of potential sales ongoing ready now with probably a minimum of three and as many as four or five customers. So, we’re negotiating with each we have -- as I mentioned, we have a letter of intent to sell four at this point.

We expect those four will be delivered as the buyer is conducting due diligence in preparation for closing. I think those will all close, probably over the next 60 days, could go to 90 days.

Simultaneously, we're working a LoI with another customer that will potentially take as many as 10 aircraft, again their closing would be as fast as we could put the airplane and those aircraft that we don't have to convert so those aircraft we could close on those as fast as we could deliver the aircraft with the proper engines and the records all updated.

We expect that those aircraft assuming we finish the LoI that we're close to finishing now, we think that those aircraft will also close and the second and third quarter could drag into the fourth quarter.

And finally, we have another operator that is interested in -- two, one, that’s interested in three to six, and then another one that's interested in as many as it does. And now we don't have this many airplanes as I just mentioned, but our expectation is that those additional customers will take aircraft that we're converting.

So, we've got -- we have -- we signed up to buy five cargo kits from Precision that we intend to convert the aircraft ourselves. The first aircraft is nearing completion of conversion will be finished in May, and then we'll roll -- we'll roll one in right behind it. And then there'll be a total of five.

We expect to be able to deliver three of those because the demand for converted aircraft today is extremely high. We believe we'll have customers for those aircraft as they roll out the hangar, but we believe we'll have customers for those aircraft before they roll out the hangar. Ideally, before we can -- before we put the next one into conversion.

So, I would expect that we'll have three converted aircraft sold for this year, if we can do a fourth. We can finish a fourth, we'll be able to put a fourth one this year and the balance will roll into the -- balance of converted aircraft will roll into 2021. So, the expectation is, we'll sell the majority of aircraft this year.

Whatever we have leftover to sell will be sold next year, and -- once we decide which aircraft is not going to be converted those aircraft will be fed into our parts machine..

Got it. And then, on AerAware, I was wondering if you could expand upon what's the milestones reinvest your should be tracking for certification the type certification.

What is your best guess -- what still needs to be done if you will? And what's the lead time to getting that done? So when's the earliest we could actually see certification coming through?.

Okay, so good question. We're flying with FA in two weeks, less than two weeks. We expect that we will have that FAA certification or pre-certification flying done that same week. So before the end of this month, we will no longer have to fly the airplane to demonstrate.

Our expectation is by the way is, we won't have to fly the airplane to demonstrate to the FAA any longer, after we do the next flight. Remember, we've flown over 60 hours on the airplane already with an FAA designated engineering representative, a DER.

And we have another FAA designated person, who is certified at the airplane meets the all our drawings and conforms to a certification, which he'll be able to issue when the FAA completes its test flights. When that happens, we're still waiting on some documentation from Universal on software validation, which we expect to have by the end of April.

At least, we hope by the end of April. So, once -- the FAA won't issue the STC until it has the validation paperwork on the software. We are therefore hopeful that sometime in May after the validation of the software is finished, that all the documentation will be in the hands FAA and we'll just be waiting for them to approve.

Our expectation is we should have what we believe because the FAA seems to be really interested in this project that we'll have the certification. Our best guess is by end of May sometime in June. But before the end of the second quarter, we believe we'll have it certified..

Okay. That's great to hear. And then my last one for now anyway is, if you could just talk about the equipment acquisition environment. So we didn't see as many retirements as we thought maybe last year.

Wondering, if you're expecting that flight to show up in 2021? And if so, are you already seen a lot of opportunity to deploy capital to acquire USM, if you could just talk to that environment?.

So, we've been seeing it all year, but it's not been pricing that's attractive for us. So I don't know if the, ultimately these assets have been settling because the price of which we'd be willing to pay, it's not as suitable to the sellers. That's been I would say, predominantly what we've experienced to-date.

However, what we're starting to see now is that aircraft that have now been on the ground for coming up on a year, that the sellers of those aircraft are realizing that many of them are not going to get redeployed with all the aircraft on the ground and a status of the passenger airline industry.

Those airplanes are not likely to be deployed in anytime soon. The lessors who have aircraft and the aircraft that are still in the hands of lessees that are unable to pay, have no place to put the aircraft right now, that’ll be alleviated as some aircraft are returned to service, freeing up some storage space for other aircraft to go into service.

So, what we are seeing is that pricing is now finally getting to the point where our bid as separation is very small. Arguably, we could take some of the deals that are being offered today, but we still think that pricing is going to soften, so we're not over eager to spend money today until we really feel that we're at or close to the bottom.

And I think that that’s, this is my personal opinion that we're six months away from releasing pricing in volume coming to us. Again, we’re seeing little trickles of it, and we are starting to acquire some assets, but not in the volume that we anticipate. I expect that as we get towards the end of the third quarter, the dam's going to break.

I think by then when aircraft are -- when aircraft have been returned to service by the end of summer, those airplanes go down, again, many of those airplanes will be retired permanently. And I think that's when we believe we'll start seeing aircraft available at attractive pricing.

So, we think it's going to be the -- we think it's going to be after the summer and the third quarter..

Our next question is from Gautam Khanna with Cowen. Please proceed with your question..

Sorry. I don't mean to monopolize, but I was going to ask couple follow ups. The other thing I was curious about was on the CARES Act funding, and so that was 9.2 million that's included in the EBITDA guide for the year I presume. Is that right? I just want to confirm that..

That’s right..

Okay.

Can you remind me, were there any non-recurring items that we should be thinking about, that are in the numbers this year or that we should just mentally model out from last year? Because if I recall, there was like a $10 million one-time item that was Q3 balance sheet, maybe Martin, if you could just kind of call out any specific items that we should be making sure we have in mind.

So we don't have kind of crazy year over year dynamics from last year, what’s happening of it just on the CARES Act and some of the other ones?.

You got it right, besides the 12.7 million in CARES Act that was in 2020, we also had a return condition payment related to a freighter asset that we have on lease. That was a little over $10 million that came in, in 2020. So that was a one-time overall item.

Obviously, in 2021 what you're going to see is an increase in whole asset sales related to the 757 transaction, when that number was relatively small, about $3 million in 2020. So, that'll be driving a lot of our revenue and margin improvements for '21..

Got it.

That makes sense, and then the other thing I was curious in Q4 itself was there any carryover of CARES Act proceeds from the prior two quarters?.

No. In the fourth quarter, we had no additional CARES Act. All the amounts that we received were utilized in the second and third quarter..

Got it.

And of the $9 million that you've talked about, is that how does that flow through, like in what period? Is that Q1, Q2, Q3?.

Yes. So, we were awarded in February, and we can use those proceeds once the proceeds were received. So, you will see a good majority of that amount coming in the first quarter, as it'll cover qualifying payroll in the first quarter with remaining incoming in the second quarter.

But it will be fully utilized by the end of the second quarter on that there any additional expenses through that program..

Got it. And then maybe just bigger picture in terms of the MRO facilities, how -- what you're seeing with respect to demand from third party customers? Are we starting to see an uptick in either USM inquiries, requests for DDR repairs? I mean, I'm just curious, we're seeing a little bit of an uptick in freight activity.

I'm wondering, how that is -- if it has translated yes in the first quarter with respect to kind of your run of the mill aftermarket demand at the various -- at the [indiscernible]?.

We're really at our capacity. We're just being slammed at our heavy MROs. It's hard to separate the storage revenue from return to service revenue from new aircraft going in because we're seeing both aircraft exiting storage and aircraft entering storage.

And so, it's tying up so much of our resources, our personnel resources doing that, while we've got a conversion line going on, while we have customers that are jumping up and down for their aircraft to be ready for the next customer, getting painted.

I would tell you that, from our perspective, this is the best we've ever seen it from an airframe MRO perspective where we suffered since the start of the pandemic and we're starting to see signs of recovery is on the component MRO side because aircraft were grounded similar engine leasing other than wide-body engine leasing to support cargo customers.

The demand for component MRO has been severely diminished post as a result of COVID. There're signs of life as well and we anticipate to see rising volumes in our component MRO.

Landing gear is right now is -- our issues with landing gear are going to be to make sure that we have enough personnel to accommodate the amount of landing gear work that we expect to have this year. So, the component MRO site is coming back on the USM part side.

Interestingly, I think because the wide-body market is so soft with respect to passengers, you would think that the demand for engine parts for our wide-body aircraft would be diminished. It's not, it's just the opposite.

What we're seeing is that for aircraft that operates at PW 4,000, that's the Pratt and Whitney 4,000 and it goes on to 767, 747 and likewise, the CS 680. We're seeing demand that material is recovering nicely right now as well as the demand for those engines..

And then it's that a freighter driven dynamic?.

Yes, there's a freight, that's freighter driven dynamic..

Got it. And Martin you know I was looking through the earnings release, if I recall there was something like a $1.87 million adjustment to EBITDA quarter, if I recall.

What was that by the way?.

Hold on. Let me go back. That's the one that says equity compensation..

It's in the adjusted EBITDA table at the back of the release, it was at 1.869..

Credit?.

It was a debit -- sorry. Some sort of, it was a negative to EBITDA..

Negative, that's related to transaction costs. So in last year, we expensed legal fees related to the overall merger and we had adjusted our EBITDA calculation. We ended up running that was eligible to be run as a transaction costs. So, we reversed that out of the overall EBITDA number, not to take credit for it in 2020..

Got it, okay, that’s all clear. Let’s see, okay terrific. Well thank you so much. I appreciate the color..

You welcome..

And our next question is from Ken Herbert with Canaccord. Please proceed with your question..

Hey good morning, good afternoon. I just wanted to follow up on your comments regarding your storage facilities.

At what point this year, do you expect to start to see an outflow of aircraft out of those facilities? And when we hit that point or get close to that point, what does that do for you from a revenue standpoint?.

So, I'm not sure we're going to see a net outflow this year. I think we projected it, but that’s not my belief. And the reason I say that is because as I mentioned, there's just not enough storage available storage capacity for the amount of aircraft that are not generating positive revenue by the carriers that are operating them.

So, we are constantly being asked for the airlines to -- asking us to store more aircraft than our facilities and we’re turning them away.

So what I expect to happen is this, that some of these narrow bodies exit, we're going to see more wide-body enter, more wide-body aircraft enter storage and that’s going to keep us busy for really the balance of the year. I don’t see any material reduction in storage revenue associated and the maintenance associated with storage this year.

When that balance switches, shifts and more aircraft are coming out than are going in, what that's going to do is that's going to, it's going to result in really loading up our aircraft MRO facilities with a lot of return to service work, which would include heavy checks, potentially cargo conversions, painting, interior reconfigurations, et cetera.

So, we think that although the storage businesses is higher margin business than that. It's also very easy to do is because the labor is not real high tech labor. We think there's more man hours to be billed during return to service work than just storage work. So we think that's going to be an offset..

Okay, that’s helpful, and it sounds like from your comments Nick that you’re obviously you see more. I guess, the opportunity getting better as we go through this year for your ability to acquire feedstock perhaps more attractive prices.

Is it possible for you to quantify that at all? I mean, obviously the risk of maybe trying to time the market is too much and I think you would know better than anybody.

But how much more downside could you expect to see on some of these feedstock opportunities? And what do you need to see to start to get maybe as a signal where you start to get more aggressive on starting to procure material?.

So, we're not competitive as to acquire aircraft and do a sale lease back because that's just in my opinion, that uses a different capital structure then we have. Where we have an advantage is when an aircraft is naked, it comes off lease, it parts by an airline, its needs work to restore to service and to place it with another company.

If you get a fleet of them, you have to be able to take the best equipment, cobble it together to create flyable aircrafts through engines and then figure out what to do with the residuals. That's what our value add is, which is to do whatever it takes and to get excellent value out of that route.

So where we see our advantages, the leasing companies, there's a lot of money coming into the space or has come into the space. And most of those investors are scarfing up whatever aircraft are able to be are either put -- they're on lease current or ready for lease. And we're not seeing that that's the majority of aircraft that are parked.

But the majority of the aircraft that are parked today are aircraft that require a significant amount of work before they can be returned to service for somebody.

And just like our 757 transactions, I think the reason we won that transaction is our ability to do all the things to get maximum value out of that package, because there were no leases attached, there were no buyers. We have to go find a buyer.

We had to create the value, figure out where the highest value was that it put and was, whether it'd be a freighter or a passenger. What do you do with this leftover, the engines and parts, the airframe and engine? If you don't have the ability to monetize the airframe and engines at the parts level, it's pretty hard to buy a package of aircraft.

So as more and more aircraft continued to stay stagnant in storage and the airlines and leasing companies are writing them down to a point at which they all get out of the assets regardless, because they're not going -- most of these are not going to go up in value. That's when we see the value of these assets will come into our price range.

Again, what's going to be -- what will tell us that, I mean we're just going to see? I don't know if there's any event or anything that I can point to specifically that says, what event will trigger the aircraft coming into our price range other than you've got a peak of flying coming up during the summer after the summer travel is over.

I think that you're into September, October kind of the doldrums for the airlines, passenger carriers that's when I think carriers are going to rationalize their fleets.

And that's when I think the leasing companies will realize that they didn't get aircraft out during the summer though they're not likely to get them out for a while more after having had airplanes revenue service for a year and a half it just feels to me like that's a time at which people would just give up and they'll sell them into the market or they'll just continue to write them down.

But I think the most rational sellers will sell them for what they’re worth and not hold them and just send money on storage and maintenance while they’re writing them down on their books. That does not feel like the right economic answer. It might be the right P&L answer, but this is not the right economic answer..

All right Nick. Thanks for all the detail..

You welcome..

[Operator Instructions] And it seems as if there are no more questions therefore we’ve reached the end of the question-and-answer session. Now, I’ll turn the call over to Nicolas Finazzo for closing remarks..

Okay, so Gautam and Ken, thank you very much for the good questions. Appreciate that. Good talking to you guys today. And thank you everyone else for joining our call and we look forward to updating you again next quarter. Thank you. Good bye..

This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation..