AIR TRANSPORT SERVICES GROUP, INC. MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") has been prepared with reference to the historical financial condition and results of operations of
Air Transport Services Group, Inc., and its subsidiaries. Air Transport Services Group, Inc.and its subsidiaries may hereinafter individually and collectively be referred to as "the Company", "we", "our", or "us" from time to time. The MD&A describes the principal factors affecting our results of operations, financial condition, cash flow, liquidity and capital resources. The MD&A should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes prepared in accordance with accounting principles generally accepted in the United States of America("GAAP") contained in this report and the audited consolidated financial statements and related notes prepared in accordance with GAAP contained in our 2021 Form 10-K.
We lease aircraft and provide airline operations, aircraft modification and maintenance services, ground services, and other support services to the air transportation and logistics industries. Through ATSG's subsidiaries, we offer a range of complementary services to delivery companies, freight forwarders, e-commerce operators, airlines and government customers. Our principal subsidiaries include our aircraft leasing company (CAM) and three independently certificated airlines (ABX, ATI and OAI).
We have two operating segments to present:
CAM offers aircraft leasing and related services to external customers and also leases aircraft internally to the Company's airlines. CAM acquires passenger aircraft and manages the modification of the aircraft into freighters. The follow-on aircraft leases normally cover a term of five to ten years. CAM currently leases Boeing 767, 757 and 777 aircraft and aircraft engines. ACMI Services includes the cargo and passenger transportation operations of our three airlines. Our airlines operate under contracts to provide a combination of aircraft, crews, maintenance, insurance and aviation fuel. Our customers are typically responsible for supplying the necessary aviation fuel and cargo handling services and reimbursing our airline for other operating expenses such as landing fees, ramp expenses, certain aircraft maintenance expenses and fuel procured directly by the airline. Aircraft charter agreements, including those for the
DoD, usually require the airline to provide full service, including fuel and other operating expenses for a fixed, all-inclusive price. Our other business operations, which primarily provide support services to the transportation industry, include providing aircraft maintenance and modification services to customers, cargo load transfer and sorting services as well as related equipment maintenance services. These operations do not constitute separate reportable segments. At March 31, 2022, we owned 108 Boeing aircraft that were in revenue service. We also owned twelve Boeing 767-300 aircraft and three Airbus 321-200 aircraft either already undergoing or awaiting induction into the freighter conversion process at March 31, 2022. In addition to these aircraft, we leased four passenger aircraft from third parties and operated seven freighter aircraft provided by customers for whom we provide services under CMI agreements. Due to the strong demand for medium widebody and narrow body freighters and as part of our continued growth strategy to expand and diversify our fleet, during 2021 we secured additional aircraft conversion slots over the next few years. We continue to work closely with Israel Aerospace Industriesand forged new conversion relationships with Boeing and Elbe Flugzeugwerke("EFW"). Further, we perform our own conversions of the Airbus A321 aircraft through a joint venture arrangement. Customers
Our biggest customers are ASI, which is a subsidiary of Amazon, the
Revenues from our commercial arrangements with ASI comprised approximately 34% and 35% of our consolidated revenues during the three month periods ended
March 31, 2022and 2021 respectively. As of March 31, 2022, we leased 42 Boeing 767 freighter aircraft to ASI with lease expirations between 2023 and 2031 and we operate those aircraft for ASI. The aircraft lease terms typically range from 5 to 10 years. We operate five other Boeing 767 aircraft provided by ASI. We also provide ground services and aircraft maintenance services to ASI. 26 -------------------------------------------------------------------------------- DHL comprised 11% and 14% of our consolidated revenues during the three month periods ended March 31, 2022and 2021, respectively. As of March 31, 2022, we leased 13 Boeing 767 freighter aircraft to DHL comprised of four Boeing 767-200 aircraft and nine Boeing 767-300 aircraft, with expirations between 2023 and 2028. Eight of the 13 Boeing 767 aircraft were being operated by the Company's airlines for DHL. Additionally we operated two Boeing 767 aircraft that were provided by DHL. In February 2022, the Company and DHL agreed to a six-year extension of its dry leases for five Boeing 767 freighters as well as an extension of the CMI agreement with DHL for ABX to operate aircraft through April 2028. The CMI agreement was expanded to include two additional 767 freighters. The DoDcomprised 28% and 22% of our consolidated revenues during the three month periods ended March 31, 2022and 2021 respectively, derived primarily from operating passenger and combi charter flights. We utilize our fleet of fifteen passenger aircraft to operate troop movement flights for the DoD. We also operate our four combi aircraft for the DoD, which are capable of simultaneously carrying cargo and passengers on the main deck. We have been providing services to the DoDsince the 1990's, typically under one year agreements. RESULTS OF OPERATIONS Revenue and Earnings Summary External customer revenues from continuing operations increased by $109.8 million, or 29%, to $485.9 millionduring the first three months of 2022 compared to the same period in 2021. Customer revenues increased in 2022 across all lines of business but particularly for contracted airline services, charter flights, aircraft leasing and aviation fuel sales, compared to the previous year's period. Nine additional aircraft have been placed on customer leases since April 1, 2021. An increase in block hours for DoDtroop movements resulted in a significant increase in ACMI Services revenue compared to the prior year's period. Consolidated net earnings from continuing operations were $49.8 millionfor the three month period ended March 31, 2022compared to $42.3 millionfor the corresponding period of 2021. The pre-tax earnings from continuing operations were $65.1 millionfor the three month period ended March 31, 2022compared to $55.1 millionfor the corresponding period of 2021. Earnings were affected by the following specific events and certain adjustments that do not directly reflect our underlying operations among the periods presented. •Pre-tax earnings from continuing operations included net gains of $2.7 millionand net losses of $9.5 millionfor the three month periods ended March 31, 2022and 2021, respectively, for the re-measurement of financial instruments, including warrant obligations granted to Amazon. •Pre-tax earnings from continuing operations were also reduced by $5.8 millionand $5.7 millionfor the three month periods ended March 31, 2022and 2021, respectively, for the amortization of customer incentives given to Amazon in the form of warrants.
• Pre-tax income from continuing operations included gains of
•Pre-tax earnings from continuing operations included losses of
$1.4 millionand $1.2 millionfor the three month periods ended March 31, 2022and 2021, respectively, for the Company's share of development costs and expense for a joint venture. •During the three month period ended March 31, 2021, the Company recognized $28.0 millionof government grants from the CARES Act, PSP Extension Law and the American Rescue Plan. After removing the effects of these items, adjusted pre-tax earnings from continuing operations, a non-GAAP measure (a definition and reconciliation of adjusted pre-tax earnings from continuing operations follows), were $64.2 millionfor the three month period ended March 31, 2022compared to $20.0 millionfor the corresponding period of 2021. Improved results of $44.2 millionwere driven by additional aircraft leases to external customers, an increase in the number of freighter aircraft we operate and more passenger block hours for the DoDcompared to the previous year's quarter. 27 -------------------------------------------------------------------------------- A summary of our revenues and pre-tax earnings from continuing operations as well as a reconciliation of adjusted pre-tax earnings from continuing operations to pre-tax earnings from continuing operations is shown below (in thousands): Three Months Ended March 31, 2022 2021 Revenues from Continuing Operations: CAM Aircraft leasing and related services $ 111,935 $ 88,229Lease incentive amortization (5,030) (4,952) Total CAM 106,905 83,277 ACMI Services 330,090 247,131 Other Activities 102,535 93,698 Total Revenues 539,530 424,106 Eliminate internal revenues (53,670) (48,018) Customer Revenues
Pre-Tax Earnings from Continuing Operations: CAM, inclusive of interest expense
$ 34,995 $ 21,462ACMI Services, inclusive of government grants and interest expense 22,165 21,259 Other Activities 1,551 389 Net unallocated interest expense (307) (754) Net financial instrument re-measurement gain 2,696 9,472 Other non-service components of retiree benefits costs, net 5,388 4,457 Loss from non-consolidated affiliate (1,403) (1,183) Pre-Tax Earnings from Continuing Operations 65,085 55,102 Add other non-service components of retiree benefit costs, net (5,388) (4,457) Less government grants - (28,030) Add charges for non-consolidated affiliates 1,403 1,183 Add lease incentive amortization 5,798 5,699 Add net gain on financial instruments (2,696) (9,472) Adjusted Pre-Tax Earnings from Continuing Operations
Adjusted pre-tax earnings from continuing operations, a non-GAAP measure, is pre-tax earnings from continuing operations excluding the following: (i) settlement charges and other non-service components of retiree benefit costs; (ii) gains and losses for the fair value re-measurement of financial instruments including warrants issued to Amazon; (iii) customer incentive amortization; and (iv) the start-up costs and expenses of a non-consolidated joint venture. We exclude these items from adjusted pre-tax earnings because they are distinctly different in their predictability or not closely related to our on-going operating activities. We also excluded the recognition of government grants from adjusted earnings to improve comparability between periods. Management uses adjusted pre-tax earnings from continuing operations to compare the performance of core operating results between periods. Presenting this measure provides management and investors with a comparative metric of fundamental operations while highlighting changes to certain items among periods. Adjusted pre-tax earnings from continuing operations should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. The Company's earnings were impacted by the fair value re-measurement of the Amazon warrants classified in liabilities at the end of each reporting period, customer incentive amortization and the related income tax effects. The fair value of the warrants issued or issuable to Amazon were recorded as a customer incentive asset and are 28 -------------------------------------------------------------------------------- amortized against revenues over the duration of the aircraft leases. Our accounting for the warrants issued to Amazon has been determined in accordance with the financial reporting guidance for financial instruments. For additional information about the warrants issued to Amazon, see the accompanying notes to the financial statements included in this report.
Aircraft Fleet Summary
Our fleet of cargo and passenger aircraft is summarized in the following table as of
March 31, 2022and December 31, 2021. Our freighters, converted from passenger aircraft, utilize standard shipping containers and can be deployed into regional cargo markets more economically than larger capacity aircraft, newly built freighters or other competing alternatives. At March 31, 2022, we owned twelve Boeing 767-300 aircraft and three Airbus A321-200 aircraft that were either already undergoing or awaiting induction into the freighter conversion process.
Aircraft fleet activity in the first three months of 2022 is summarized below:
•CAM completed the modification of a Boeing 767-300 cargo aircraft purchased the previous year. The aircraft is leased to an external customer under a multi-year lease.
•CAM purchased a Boeing 767-300 passenger aircraft with the aim of converting the passenger aircraft to a standard freighter configuration. This aircraft should be leased to an external customer in 2023.
•CAM purchased two Airbus A321-200 passenger aircraft with the aim of converting the passenger aircraft into a standard freighter configuration. These aircraft should be leased to external customers during 2022.
•ATI began to operate one customer-provided Boeing 767-300 freighter aircraft. March 31, 2022 December 31, 2021 ACMI ACMI Services CAM Total Services CAM Total In-service aircraft Aircraft owned Boeing 767-200 Freighter 5 26 31 5 26 31 Boeing 767-200 Passenger 2 - 2 2 - 2 Boeing 767-300 Freighter 2 60 62 2 59 61 Boeing 767-300 Passenger 6 - 6 6 - 6 Boeing 777-200 Passenger 3 - 3 3 - 3 Boeing 757-200 Combi 4 - 4 4 - 4 Total 22 86 108 22 85 107 Operating lease Boeing 767-200 Passenger 1 - 1 1 - 1 Boeing 767-300 Passenger 3 - 3 3 - 3 Boeing 767-200 Freighter 2 - 2 2 - 2 Boeing 767-300 Freighter 5 - 5 4 - 4 Total 11 - 11 10 - 10 Other aircraft Owned Boeing 767-300 under modification - 12 12 - 12 12 Owned Airbus A321-200 under modification - 3 3 - 1 1 Owned Boeing 767 available or staging for lease - 1 1 - 1 1 As of
March 31, 2022, ABX, ATI and OAI were leasing 22 in-service aircraft internally from CAM for use in ACMI Services. Of CAM's 26 externally leased Boeing 767-200 freighter aircraft, 12 were leased to ASI and operated by ABX or ATI, one was leased to DHL and operated by ABX, three were leased to DHL and were being 29 -------------------------------------------------------------------------------- operated by a DHL-affiliated airline and ten were leased to other external customers. Of the 60 externally leased Boeing 767-300 freighter aircraft, 30 were leased to ASI and operated by ATI, seven were leased to DHL and operated by ABX, two were leased to DHL and are being operated by a DHL-affiliated airline and 21 were leased to other external customers. The carrying values of the total in-service fleet as of March 31, 2022and December 31, 2021were $1,698.3 millionand $1,693.0 million, respectively.
CAM added nine Boeing 767-300 freighter aircraft to its portfolio since
April 1, 2021and grew its revenues by $23.6 millionduring the first quarter of 2022 compared to the first quarter of 2021. As of March 31, 2022and 2021, CAM had 86 and 75 aircraft under lease to external customers, respectively. Revenues from external customers totaled $76.7 millionand $60.8 millionfor the first quarter of 2022 and 2021, respectively. Since April 1, 2021, CAM placed eleven Boeing 767-300 aircraft with external customers under long-term leases. Additionally, in October of 2021, CAM began to offer engine power coverage to lessees of CAM's General Electricpowered Boeing 767-200 aircraft. Under this service, CAM is responsible for providing and maintaining engines for its lease customers as needed through a pool of engines. Revenues from external customers increased $6.3 millionduring the first quarter of 2022 for this service. CAM's revenues from the Company's airlines totaled $30.2 millionduring the first quarter of 2022, compared to $22.5 millionfor 2021. CAM's pre-tax earnings from continuing operations, inclusive of internally allocated interest expense, were $35.0 millionand $21.5 millionduring the first quarter of 2022 and 2021, respectively. Increased pre-tax earnings reflect the nine aircraft placed into service since April 1, 2021and a $1.5 milliondecrease in internally allocated interest expense due to lower company-wide interest expense, offset by a $9.3 millionincrease in depreciation expense driven by the addition of aircraft. In addition to the 12 Boeing 767-300 aircraft and three Airbus A321-200 aircraft which were in the modification process at March 31, 2022, CAM has agreements to purchase eleven more Boeing 767-300 aircraft during 2022 and 2023. CAM's operating results will depend on its continuing ability to convert passenger aircraft into freighters within planned costs and within the timeframes required by customers. During 2022, we expect to lease to external customers at least eight more newly modified Boeing 767-300 freighters, two newly modified Airbus A321-200 freighters and re-deploy one Boeing 767-200 freighter. CAM's future operating results will also depend on the timing and lease rates under which aircraft are redeployed when leases expire. Additionally, CAM's future operating results from engine power services will depend upon engine cycles operated, the number of engine overhauls and the severity of unscheduled maintenance events.
Total revenues from ACMI Services increased
$83.0 millionduring the first quarter of 2022 compared with corresponding period of 2021 to $330.1 million. Improved revenues for 2022 were driven by a 42% increase in block hours flown for DoDtroop movements particularly to Europe, as well as ten additional freighter aircraft added to operations compared to the first quarter of 2021, including five more customer-provided aircraft that are not owned by CAM. Overall customer block hours increased 21% for the three month period ended March 31, 2022compared to the corresponding period in 2021, with increases in block hours flown for DHL and Amazon. As of March 31, 2022and 2021, ACMI Services included 83 and 73 in-service aircraft, respectively. ACMI Services had pre-tax earnings of $22.2 millionfor the three month period ended March 31, 2022, compared to $21.3 millionfor 2021 inclusive of internally allocated interest expense and the recognition of pandemic-related government grants of $28.0 million. Pre-tax earnings, excluding the recognition of government grants, improved $28.9 millioncompared to the first quarter of 2021. Improved earnings were a result of the increased number of aircraft in operations and more block hours flown during the first quarter of 2022 compared to 2021. While employee salaries and wages, contract labor, and travel expenses all increased relative to the prior year period, the additional operating volumes drove earnings higher. Internally allocated interest expense decreased to $3.4 millionfor the first quarter of 2022 compared to $4.5 millionfor 2021.
Whether ACMI Services continues to be profitable will depend on a number of factors, including the impact of COVID-19 outbreaks, customer flight schedules, crew member productivity and compensation, increased employee salaries and benefits, aircraft maintenance schedules and the number of aircraft we operate. Recruitment, training and retention
employees and contractors are important factors in our success. Severe disruptions or shortages of qualified employees could adversely affect our financial results.
Other Activities We provide other support services to our ACMI Services customers and other airlines by leveraging our knowledge and capabilities developed for our own operations over the years. Through our
FAAcertificated maintenance and repair subsidiaries, we sell aircraft parts and provide aircraft maintenance and modification services. We also provide mail sorting, parcel handling and logistical support to USPSfacilities and similar services to certain ASI hub and gateway locations in the U.S.We provide maintenance for ground equipment, facilities and material handling equipment and we resell aviation fuel in Wilmington, Ohio. Additionally, we provide flight training services. External customer revenues from all other activities increased $10.9 millionin the first quarter of 2022 compared to the corresponding period of 2021, due to fuel sales, up $5.8 million, and broad increases across most maintenance and ground services offerings. As a result, pre-tax earnings from other activities increased by $1.2 millionfor the first three months of 2022 compared to the same period last year.
Expenses from continuing operations
Salaries, wages and benefits expense increased
$19.7 millionor 14% during the first quarter of 2022 compared to 2021. While the number of total employees is similar for the periods, salaries and wages have been impacted by higher wage rates, benefit costs and employee termination rates. Depreciation and amortization expense increased $11.0 millionduring the quarter ended March 31, 2022compared to 2021. The increase reflects incremental depreciation for nine additional aircraft as well as additional depreciation expense for engines that are now being serviced and maintained by CAM under engine power coverage arrangements. We expect depreciation expense to increase during future periods in conjunction with our fleet expansion, engine programs and capital spending plans. Maintenance, materials and repairs expense decreased by $6.3 millionduring the quarter ended March 31, 2022, compared to the corresponding period of 2021. Maintenance expense for the first quarter of 2021 included $9.5 millionfor an engine power-by-the-cycle agreement that expired in September 2021. We are now maintaining these engines through time and material agreements with engine maintenance providers to replace the expired power-by-the-cycle agreement. The remaining increase in expense was driven by increased flight operations for the DoDand our customers' express cargo networks and by additional scheduled airframe checks. The aircraft maintenance and material expenses can vary among periods due to the number of maintenance events and the scope of airframe checks that are performed. Fuel expense increased by $29.9 millionduring the quarter ended March 31, 2022, compared to the corresponding period of 2021. Fuel expense includes the cost of fuel to operate DoDcharters, fuel used to position aircraft for service and for maintenance purposes, as well as the cost of fuel sales. Fuel expense increased due to the additional block hours for the DoDand due to increases in the price per gallon of aviation fuel compared to the previous year. Aviation fuel rates increased approximately 40% per gallon for the comparative period. Contracted ground and aviation services expense includes navigational services, aircraft and cargo handling services, baggage handling services and other airport services. Contracted ground and aviation services increased $3.5 millionfor the first quarter of 2022 compared to the corresponding period for 2021. The increases were driven primarily by the increased flying volume. Travel expense increased by $5.8 millionfor the first quarter 2022 compared to the corresponding period of 2021. In addition to increased flying volumes, travel expense increased due to higher airfares and hotels rates compared to a year ago.
Landing and runway expenses, which include the cost of de-icing chemicals, increased by
31 -------------------------------------------------------------------------------- Other operating expenses increased by
$3.4 millionfor the first quarter of 2022 compared to 2021. Other operating expenses include professional fees, employee training, utilities, commission expense to our CRAF team for DoDrevenues and other expenses. Operating results included a pre-tax expense credit of $28.0 millionfor the first quarter of 2021 to recognize grants received from the U.S.government under the CARES Act, PSP Extension Law and the American Rescue Plan. For additional information about these grants, see Note H of the unaudited condensed consolidated financial statements included in this report.
Non-operating income, adjustments and charges
Interest expense decreased by
$3.1 millionfor the the first quarter of 2022 compared to the corresponding period for 2021. Interest expense decreased due to lower interest rates on our borrowings under the Senior Credit Agreement and lower average debt balances outstanding during the period. The Company recorded unrealized pre-tax gains on financial instrument re-measurements of $2.7 millionduring the three month period ended March 31, 2022, compared to a pre-tax gain of $9.5 millionfor 2021. The gains include the results of re-valuing, as of March 31, 2022and 2021, the fair value of the stock warrants granted to Amazon as well as interest rate derivatives that we hold. The warrant values generally increase or decrease with corresponding increases or decreases in the ATSG share price during the measurement period. Additionally, the value of certain warrants depends partially on the probability that warrants will vest upon the execution of aircraft leases. Increases in the probability of warrants vesting results in higher liabilities and losses. (See Note C for additional information about the Amazon warrants.) The pre-tax gain for the first quarter of 2022 was primarily a result of the impact of higher market interest rates on the interest rate derivatives that we held. (See Note G for additional information about the interest rate derivatives.) Non service components of retiree benefits were a net gain of $5.4 millionfor the first quarter of 2022 compared to $4.5 millionfor 2021. The non service component gain and losses of retiree benefits are determined by actuaries and include the amortization of unrecognized gains and loss stemming from changes in assumptions regarding discount rates, expected investment returns and other retirement plan assumptions. Non service components of retiree benefits can vary significantly from one year to the next based on investment results and changes in discount rates used to account for defined benefit retirement plans. The provision for income taxes for interim periods is based on management's best estimate of the effective income tax rate expected to be applicable for the current year, plus any adjustments arising from changes in the estimated amount of taxable income related to prior periods. Income taxes recorded through March 31, 2022have been estimated utilizing a 23% rate based upon year-to-date income projected results for the full year. The recognition of discrete tax items such as the conversion of employee stock awards, officer's compensation, the issuance of stock warrants and other items have an impact on the effective rate during a period. The effective rate from continuing operations for the three month period ended March 31, 2022was 23.5%. The effective tax rate is affected by the discrete tax items in which expense and benefits for tax purposes are different than required by generally accepted accounting principles. The effective tax rate before including the effects of the warrant re-measurement, incentive amortizations and the other adjustments for adjusted pre-tax earnings from continuing operations (see items in the table above) was 23.5% for the three month period ended March 31, 2022. The effective tax rate before including the effects of the warrants was 24% for the three month period ended March 31, 2021.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash generated from operating activities totaled
$125.7 millionand $124.4 millionfor the three month periods ended March 31, 2022and 2021, respectively. Cash flows from operating activities included $0and $37.4 millionfrom government payroll support programs during 2022 and 2021, respectively. Improved cash flows generated from operating activities for the first quarter of 2022 included additional aircraft leases to customers and increased operating levels under the ACMI Services segment. Cash outlays for pension contributions were $0.8 millionand $1.1 millionfor the first three months of 2022 and 2021, respectively. 32 -------------------------------------------------------------------------------- Capital spending levels were primarily the result of aircraft modification costs and the acquisition of aircraft for freighter modification. Cash payments for capital expenditures were $108.3 millionand $125.4 millionin the first three months of 2022 and 2021, respectively. Capital expenditures in 2022 included $71.9 millionfor the acquisition of one Boeing 767-300 aircraft, two Airbus A321-200 aircraft and freighter modification costs; $31.9 millionfor required heavy maintenance; and $4.5 millionfor other equipment. Capital expenditures in the first quarter of 2021 included $84.7 millionfor the acquisition of four Boeing 767-300 aircraft and freighter modification costs; $37.3 millionfor required heavy maintenance; and $3.4 millionfor other equipment.
In the first three months of 2021, we contributed
Net cash used in financing activities was
$51.5 millionfor the three months ended March 31, 2022and net cash provided by financing activities was $14.6 millionfor the corresponding period in 2021. During the first three months of 2022, we made debt payments of $90.1 millionand we drew $40.0 millionfrom the revolving credit facility. During the first three months of 2021, we made debt principal payments of $124.1 millionand we drew $140.0 millionfrom the revolving credit facility.
March 31, 2022, the Company had 15 aircraft that were in or awaiting modification to a freighter configuration. Additionally, we placed non-refundable deposits and have agreements to purchase 11 more Boeing 767-300 passenger aircraft through 2023. We expect to purchase additional aircraft for modification in 2022 and 2023. The Company outsources a significant portion of the aircraft freighter modification process to non-affiliated third parties. The modification primarily consists of the installation of a standard cargo door and loading system. We estimate that total capital expenditures for 2022 will total approximately $590 million, of which the majority will be related to aircraft purchases and freighter modifications. Actual capital spending for any future period will be impacted by aircraft acquisitions, maintenance and modification processes. Liquidity At March 31, 2022, the Company had $35.5 millionof cash balances and $474.9 millionavailable from the unused portion of the revolving credit facility under its Senior Credit Agreement as described in Note F of the accompanying financial statements. We expect our operations to continue to generate significant net cash in-flows after deducting required spending of approximately $200 millionfor heavy maintenance and other sustaining capital expenditures during the year 2022. To expand our fleet we estimate that capital expenditures for aircraft purchases and freighter modifications will total $390 millionfor 2022. We believe that the Company's current cash balance, forecasted cash flows provided from its customer leases and operating agreements, combined with its Senior Credit Agreement, will be sufficient to fund the expansion and maintenance of our fleet while meeting our contractual obligations, other commitments and working capital requirements for at least the next twelve months.
Continued global disruptions to supply chains and labor shortages could delay aircraft modification projects, push contractual obligations to later periods and could impact the expected amount of capital expenditures.
CRITICAL ACCOUNTING ESTIMATES The MD&A and certain other disclosures included elsewhere in this report, are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of the financial statements requires us to select appropriate accounting policies and make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. In certain cases, there are alternative policies or estimation techniques which could be applied. On an ongoing basis, we evaluate our selection of policies and the estimation techniques we use, including those related to revenue recognition, post-retirement liabilities, bad debts, self-insurance reserves, valuation of spare parts inventory, useful lives, salvage values and impairment of property and equipment, income taxes, contingencies and litigation. We base our estimates on historical experience, current conditions and on various other assumptions that are believed by management to be reasonable under the circumstances. Those factors form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources, as well as for identifying and assessing our accounting treatment with respect to commitments and contingencies. By their nature, these 33 --------------------------------------------------------------------------------
judgments are subject to uncertainty. Actual results may differ from these estimates under different assumptions or conditions.
For information regarding recently issued accounting pronouncements and the expected impact on our annual statements, see Note A "SUMMARY OF FINANCIAL STATEMENT PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES" in the accompanying notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Except as provided in Note A, our critical accounting policies and estimates have not changed materially from those disclosed in our 2021 Form 10-K.
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