Cargojet's Pilot Deal: A Balanced Bet on Productivity and Growth

Strong Q2 results overshadowed by a landmark labor agreement and fuel pass-through dynamics.

CJT.TO · Earnings Call · 2026-08-11

A Quarter of Outperformance

Cargojet delivered another robust quarter, with revenue of $275.8 million and adjusted EBITDA of $87.3 million, both up year-over-year and sequentially. Management credited the pilot group and the broader team for excellent operational execution, highlighted by an industry-leading on-time performance of 99.2%. The quarter also saw free cash flow swing to a strong $56.2 million inflow from a $72.5 million outflow a year earlier, and the leverage ratio improved to 2.6x, on track for the sub-2.5x target. As CFO Aaron McKay put it: “Our positive results this quarter reflect the organizational agility that is foundational to Cargojet's business and our ability to deliver disciplined growth across market cycles.” — Aaron McKay, Chief Financial Officer · 2026-08-11

A Landmark Labor Agreement

The most significant development this quarter was the ratification of a five-year collective agreement with pilots. Effective July 1, 2026, pilots receive a 26% wage increase, followed by 5% annual increases through 2031. Critically, the deal also includes productivity improvements that bring Cargojet closer to market standards: flying days rise from 15 to 16 per month, with an option for pilots to stay at 15 with proportional pay. Management was explicit about the trade-off between wages and output. As “Aaron McKay” — Aaron McKay, Chief Financial Officer · 2026-08-11 explained, "Costs driven directly by wages have historically represented approximately 60% to 65% of the total crew costs," and the productivity gains are meant to offset part of the increase. Notably, the agreement retains the no-strike, no-lockout provision, a key differentiator that provides customers with long-term operational certainty. The wage hike introduces a near-term cost headwind, but management plans to pass through these costs as customer agreements come due. CEO Pauline Dhillon noted:

As customer agreements come due, we will look to pass these costs through. Many of these conversations have begun, but we anticipate a lag in timing.
Pauline Dhillon, Chief Executive Officer · 2026-08-11

This is a recurring theme from previous calls, where the company emphasized that pilot negotiations would be balanced and that productivity improvements were essential. In the prior quarter, Ajay Virmani had said: “We are in the middle of negotiations. We have a very cordial and excellent relationship with the pilot group and their leadership.” — Ajay Virmani, Executive Chairman · 2026-02-25 The current deal confirms that trajectory.

Fuel Surcharge and Margin Dynamics

The rise in fuel prices was a visible headwind, diluting reported adjusted EBITDA margin by approximately 260 basis points. The company passes fuel costs through a surcharge mechanism, so the impact on profitability is neutral over time, but it temporarily compresses margins. This is a common theme across the industry, as seen in the global keyword trajectory for the quarter, which includes terms like fuel surcharges increase and "High fuel costs." Cargojet's response has been to focus on fleet utilization and cost control, areas that management has emphasized for several quarters. The fuel surcharge dilution is likely to persist while oil prices remain elevated, but the underlying business is growing: excluding fuel, revenue was up 5% year-over-year.

One Fleet, Global Reach

A key driver of the strong quarter was the continued expansion of the hybrid ACMI and charter businesses, with charter revenue up 37% year-over-year. The launch of the Tel Aviv service from Liege, using an aircraft that was previously idle over weekends, exemplifies the "One Fleet" strategy. As Pauline Dhillon explained: “Our One Fleet strategy is working well for us. It's improved our yields without growing any CapEx.” — Pauline Dhillon, Chief Executive Officer · 2026-08-11 This approach also underpins the company's confidence in expanding into new geographies, including potential charters from Western Canada to China, while keeping capital expenditure modest. The recent decision to convert one 767-200 adds $10-15 million to this year's CapEx, but management insists it will be tied to revenue opportunities or monetizable assets. The ACMI segment, however, saw a 12% year-over-year decline as the transition from transatlantic to intra-Americas flying for DHL continued. But comps are expected to normalize in the back half of the year, and management maintains a positive relationship with DHL, referring to themselves as "first in, last out" for growth. This builds on earlier commentary from the November 2025 call, where Jamie Porteous noted: “We don't anticipate it would be until later in 2026 and into 2027 at this point.” — Jamie Porteous, Co-Chief Executive Officer · 2025-11-05 The company is clearly positioning for a demand inflection. Overall, Cargojet's latest results reflect a company navigating multiple pressures—fuel costs, labor costs, and global uncertainty—while executing on a disciplined growth strategy. The pilot agreement is a defining moment, balancing compensation with productivity, and the pass-through mechanism should eventually restore margins. With strong free cash flow, a deleveraging balance sheet, and a flexible fleet, Cargojet appears well-positioned for sustainable growth, even as the macro environment remains uncertain. As management reiterated, the company is "built for change" and now also "built for disciplined growth."