Canada’s Cargojet is in the market for some new planes. The Ontario-based air cargo business has successfully raised approximately US$277 million and now wants extra aircraft to meet the increased demand for air cargo services. On Cargojet’s shopping list are a pair of Boeing 777 freighters and five Boeing 767 freighters.
e-commerce driving demand for extra aircraft at Cargojet
Cargojet presently flies 25 planes. That includes 17 Boeing 767 freighters, comprising 14 Boeing 767-300s and three 767-200s. Also flying for Cargojet are eight Boeing 757-200s. These aircraft are operating at peak capacity and carrying over 11.3 million kilograms of cargo each week via dedicated ACMI and international charter services. Business is brisk, something Ajay Virmani, CEO at Cargojet, attributes to “elevated levels of e-commerce.”
With back-to-back strong quarters, Cargojet generated US$47 million in free adjusted free cash flow during Q3 2020 and US$115 million for the nine months ending September 30, 2020. Over the busy holiday season, Cargojet says it carried record volumes of cargo.
Cargojet raises $277 million via a stock sale
The boom in e-commerce and the airline’s strong financial performance has encouraged Cargojet to start spreading its wings. A syndicate of investors is purchasing 1,642,000 Cargojet shares at a price of approximately US$169 per share, raising a tidy $277 million.
The investors also have the option of buying another 246,300 Cargojet shares at the same price, potentially topping up Cargojet’s coffers even further. Cargojet will use some of this money to discharge finance leases, including associated balloon payments, on six aircraft maturing in fiscal 2021 and fully pay down outstanding revolver balances. In a statement, Cargojet says it is committed to maintaining a strong balance sheet to support its long-term growth strategy and capitalize on new domestic and international growth opportunities.
Part of those new domestic and international growth opportunities include bolstering the Cargojet fleet. The airline is eyeing seven extra aircraft, including five Boeing 767s and two Boeing 777s.
Cargojet wants to bring the Boeing 767 freighters into its fleet before the end of 2022. In its statement, the airline says it plans to use 767 freighters primarily on time-sensitive premium overnight air cargo services within Canada.
Boeing 777s wanted to bolster Cargojet’s long-range flying
The long-range Boeing 777 freighters are slated to join Cargojet in 2023. Calling the purchase a “strategic investment,” Cargojet said the 777s would get used on international routes.
“United States and international air cargo growth opportunities have emerged as a result of rapidly evolving global supply chains and a lack of air cargo capacity in key markets,” said the Cargojet statement explaining the reasoning behind the Boeing 777 decision.
While Cargojet’s new share issue raises a handy sum, it will not cover new aircraft. The list price for a Boeing 777 freighter is around US$350 million. A factory-fresh 767 freighter comes with a price tag of around $220 million. Cargojet will be eyeing used Boeings. Not that there’s anything wrong with that. Well maintained aircraft frequently find a second life flying for cargo airlines after first seeing service flying passengers for commercial airlines.
The average age of the current Cargojet fleet is 28.3 years. While the airline both leases and owns aircraft outright, all of its aircraft have former lives with other airlines. Cargojet’s upcoming purchase will follow this well-worn path.