Cargojet Inc. (TSX:CJT) has provided an update on its ongoing efforts to further streamline its fleet strategy and the associated impacts to capital expenditures and cashflows.
Dr. Ajay Virmani, the Executive Chairman, shed light on the company’s cautious approach to deploying growth capital throughout 2023, considering the softer economic conditions globally.
B-777 Aircraft: Exit Commitments
After a year characterized by softer demand in across the global air cargo sector, Dr. Virmani emphasized that forecasts indicated a continued trend.
“Forecasts continue to indicate that the international air cargo market will remain soft in the short to medium term and deploying B-777s into the market would not be strategically prudent,” he said.
“We have decided to exit our commitments for the four remaining B-777 aircraft, while continuing to flex our B767 fleet to accommodate our organic growth strategy”, noted Dr. Virmani.
This strategic move aligns with the company’s commitment to flexibility, allowing them to re-enter the B-777 market when economic conditions are more favorable.
Importantly, Cargojet has retained the rights for potential future conversion slots, demonstrating a proactive stance in the ever-evolving aviation landscape.
Successful 2023 Holiday Season
Jamie Porteous, Co-Chief Executive Officer, reported that the holiday season performance in 2023 met the company’s expectations.
This success can be attributed to Cargojet’s optimized fleet strategy and the cost efficiencies gained throughout the year. The company is now poised to deliver robust cashflows and shareholder value.
Capital Allocations and Approach
Looking ahead to 2024, Cargojet anticipates no significant Growth Capital Expenditures. However, the corporation remains vigilant, continuously monitoring macro-economic conditions for profitable growth opportunities. Cargojet’s commitment to disciplined capital allocation is evident through four key principles:
- Maintain dividend growth
- Identify growth opportunities meeting margin requirements
- Continue share buyback program under NCIB
- Target Net Debt to Adjusted EBITDA Leverage Ratio of 1.5x to 2.5x
As of December 31, 2023, Cargojet has repurchased and canceled 366,408 voting shares under its NCIB, showcasing its confidence in the company’s value.
Surplus B757 Freighters: Exploring Options
Cargojet’s transparency extends to its surplus B757 freighters. Currently exploring options like dry leasing or ultimate sale, the company emphasizes that these decisions are not expected to have a material impact on Revenues and/or Adjusted EBITDA.
The potential leasing or sale of these aircraft aligns with Cargojet’s commitment to adaptability in response to market dynamics.
Converting B767s and Scaling Operations
The company has strategic plans for the future, owning the feedstock for two B767s with intentions to convert them as demand recovers in the next few years.
This forward-thinking approach positions Cargojet optimally to meet short to medium-term objectives, with the ability to scale up operations when the economic cycle returns to growth.
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