Cargojet sells B777s for $53mn to preserve cash

Cargojet reported 29% increase in 2022 revenue at C$980mn ($715mn) while EBITDA was up 14% at C$396mn ($289mn)

Cargojet sells B777s for $53mn to preserve cash
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Cargojet, the all-cargo Canadian carrier, has decided to complete the sale of two Boeing 777-300 aircraft for $53.5 million by early Q22023.

"Due to the recent slowdown in the global economy, the company plans to defer the induction of the B777-300 fleet and maintain its financial strength. The B777-300 disposal has no impact on the current operations as the fleet expansion was to expand international reach," says the management discussion note issued after the announcement of Q42022 and full-year 2022 results.

Cargojet reported a 29 percent increase in revenue at C$980 million ($715 million) while EBITDA was up 14 percent at C$396 million ($289 million). Net earnings increased 14 percent to C$191 million ($139 million).

For Q42022, revenue increased 13 percent to C$267 million YoY and net earnings dropped over 97 percent to C$2.6 million.

Ajay Virmani, President and CEO, Cargojet

“Over the past several years, Cargojet has evolved its business model that is increasingly based on strategic partnerships rather than transactional relationships with its customers," says Ajay Virmani, President and CEO, Cargojet. "By aligning our long-term commercial interests, we expect greater endurance of volumes with our strategic customers even if global volumes soften during a recessionary period.

“The continued global increase in e-commerce demand has produced strong growth in our domestic and ACMI business segments during the quarter. We continue to monitor various macro risks including a potential recession, which may have an impact on consumer spending. As such, Cargojet continues to carefully manage its strategy to match the capacity required with actual customer demand."

Amazon, DHL deals
As part of the strategic agreements with Amazon (April 2021) and DHL (March 2022), Cargojet has issued Amazon warrants with vesting tied to the delivery by Amazon of up to C$600 million in business volumes over 7.5 years, and DHL warrants with vesting tied to the delivery by DHL of up to C$2.3 billion in business volumes over seven years.

"While the company believes that the strategic agreements with Amazon and DHL will deliver important financial and strategic benefits, including anticipated revenue growth from Amazon and DHL’s respective business and the associated margins and that such revenue growth will be meaningfully accretive to Cargojet’s earnings and cash flows over time as well as create other benefits and opportunities, there is a risk that some or all of the anticipated benefits associated with the Amazon and DHL strategic agreements may fail to materialise or may not occur within the time periods currently anticipated by the company," says the company in its management note.

In March 2022, Cargojet also entered into a new long-term strategic agreement with DHL for a term of five years with a renewal option for an additional two years to provide air-transportation services for DHL’s global network. "Under the agreement, Cargojet will provide ACMI, CMI, charter, and aircraft dry lease services to DHL to support DHL’s international requirements for Europe and North, South, Central and Latin America as well as Asia. DHL also intends to be Cargojet’s inaugural launch customer for the Boeing 777 aircraft, which are expected to be deployed in 2024."

In November 2021, Florida-based conversion company Mammoth Freighters announced that Cargojet would be the launch customer for its new B777-200LRMF freighters.

As on December 31, 2022, Cargojet operates a fleet of 34 freighters including B767-300s, B767-200s and B757-200s. The Canadian cargo carrier plans to have a fleet of 47 freighters by the end of 2025.

Customer warning
During the year ended December 31, 2022, Cargojet had sales to three customers that represented 62.4 percent of total revenue (December 31, 2021 – 60.3 percent), an increase of 2.1 percentage points. "These sales are provided under service agreements that expire over various periods to April 2025."

Cargojet’s 10 largest customers accounted for approximately 80 percent of fiscal 2022 revenue. "The loss of any one of these contracts would cause immediate disruption and would adversely affect revenue. Any such loss could have a material adverse effect on the results of operations, and there is no assurance that the contracts will be renewed for an additional term or that the commercial terms of any such renewal would be as favourable to the company as the existing contracts," says the management.

The Cargojet management is anticipating reduction in consumer spending for 2023. "Reductions in consumer spending from a global economic slowdown could adversely impact the amount of air cargo shipped and the number of block hours flown per aircraft. However, given the nature of Cargojet’s key customer contracts that provide minimum volume guarantees, these volume guarantees will help mitigate revenue risks associated with both domestic and ACMI revenue."

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