Carmele Peter
President at Intercontinental Exchange
Thank you, Rich. Our strong financial performance in Q1 coupled with the acquisition activities in the first part of 2023 and new organic contract awards has set the stage for another year of solid growth for EIC and further solidified the foundation for 2024. Before we talk about the impact that those items will have on our outlook for the year, let me first discuss our operations for Q2, which I will do in relation to how we are now discussing our operations being through the six business lines in which our operations are included.
Starting with the Aerospace & Aviation segment. Our Essential Air Service business will see increased profitability over Q2 2022, driven primarily by increased passenger traffic in all regions. Cargo will remain relatively flat compared to last year. Charters will continue to be hampered by tight aircraft availability, but demand remains strong, in particular with increased mining exploration activity. We have three aircraft coming online in Q3 which will allow us to capture some of these additional opportunities. Medevac will see also year-over-year growth, albeit more modest from Trauma flight, which was not fully operational until later in 2022, and an expansion in the scope of work for the Government of Nunavut with increased crewing out of Ottawa and Winnipeg.
All of our air operators are experiencing increased costs from raising labor costs driven by industry-wide shortages for pilots, aircraft mechanics, and medical personnel. We have completed or are in the process of negotiating many of our collective bargaining agreements that will provide security for our employees and stability for our operations. The increase in labor costs will impact margins until such time as we are able to pass through these costs on to our customers.
The Aerospace line business will see also an increase year-over-year with the benefit of its Netherlands operations, which did not go into service until Q4 of 2022. Full deployment of the first multiplier for the back half of Q2 pursuant to its 18-month ISR contract with an allied European government, higher tempo flying in the UAE and Curacao, and some additional training contracts for the U.S. Department of Defense.
The aircraft sales and leasing business will see marginal growth year-over-year as Q2 2022 had the highest-ever aircraft and engine sales, which will be materially lower in Q2 2023. Part sales, although still strong, are being impeded by the lack of available MRO slots for teardowns. This will be offset by an increase in leasing revenue over last year. We are encouraged by the trend of our leasing revenues, but the pace is slower than expected as pilot charges continue to persist and constrain the speed of the regional narrow-body aircraft recovery.
The Environmental Access Solutions business will benefit from a full quarter of earnings from Northern Mat compared to two months in Q2 2022. However, Northern Mat's performance in Q2 2022 needs to be put in perspective as it benefited from ideal winter-spring transition conditions, peak of the market pricing, and lack of mass supply from competitors. Q2 2023 market conditions are good, but not as ideal. Going into Q2, large portions of Northern Mat's operating regions went from frozen to rain conditions, straight to road bands as temperatures rose, limiting Northern Mat's rental and operational buildup in Q2. Also declining mining lumber prices and an increase in competitor mat supply will also limit environmental Access Solutions year-over-year growth. However, to be clear, Northern Mat's performance in Q2 is still expected to materially exceed the performance metrics on which it was acquired.
The ongoing wildfires in Northern Alberta have not yet, but depending on their pace of destruction, could impact our customers or access to customers in that region, and therefore impede in the short term our operations in Northern Alberta. If this does occur, there could be an upside in later quarters as those customers look to replace Mats and rebuild any damaged infrastructures. The multistory window solutions business will benefit from the acquisition of BV Glazing on May 1 as well as increasing margins later in Q2 from higher pricing Quest took to market over a year ago to address the substantially higher input costs. Overall demand for product remains strong, but in the U.S. market from the time from coal to project contract has elongated. The Canadian market, however, is particularly experiencing high levels of activity.
The precision manufacturing and engineering business will experience organic growth year-over-year as well as benefit from the acquisition of Hansen, which was completed at the beginning of April. The organic growth is from increased demand in our wireline and wireless construction and services business as well as in precision manufacturing, in particular, for the defense sector. With respect to maintenance capital expenditures in Q2, we anticipate materially higher levels than in Q2 of 2022 for several reasons. First, the first part of Q2 2022 was impacted by the Omicron variant, which slowed activity in port maintenance capital expenditures into subsequent quarters. Secondly, our air operators are expecting increased flying hours relative to Q2 2022, leading to increased maintenance capex. Thirdly, labor shortages and supply chain issues have driven maintenance capital expenses higher. And lastly, we have increased maintenance capex due to recent acquisitions of Hansen, BV, as well as a full quarter for Northern Mat.
Growth investments for the Aerospace & Aviation segment in Q2 were focused on the upgrade of the surveillance aircraft for the renewed Curacao contract, additional aircraft capacity to capture increased charter demand, and the start of the construction of the Gary Filmon indigenous terminal, which will align our terminal capacity to the growth of the communities we serve. Also in Q2 investments will be made to modify one of our Beach 1900 aircraft to provide for scheduled Metavac flights for Nova Scotia Health. We currently have a 7-year contract with Nova Scotia Health, which is serviced by One King Air. The addition of the 1,900 aircraft is an increase in the scope of the service under that contract and will commence in Q3.
With the current size of our King Air fleet and the anticipated continued growth in this platform, EIC will be one of the largest Kinge Air operators in the world. The scope of operations led to EIC's economic and strategic decision to enter into a contract to purchase a full motion simulator to support all of our Kaner operators and eliminate the cost of sending our pilots to the U.S. for training. The simulator is expected to take several quarters to complete and install. The simulator not only provides more training time for pilots but also significantly reduces fuel burn and corresponding GHG emissions for both training and travel to training, thus reducing our carbon footprint.
Growth investments for the Manufacturing segment will be minimal with the investment concentrated on the expansion of our environmental access solutions, Mat rental fleet, and rolling stock and the procurement of some new equipment in the Precision Manufacturing and Engineering Solutions business to meet increased customer demand.
As I look to the balance of 2023, there are obviously economic challenges to manage through, including persistent higher interest rates, inflation rates, labor shortages, and increased costs. But the investments we have made in the past have paved the way for continued success for the balance of 2023. With the tailwinds of strong performance in Q1, two acquisitions in Q2, and organic growth opportunities, we are increasing our 2023 adjusted EBITDA guidance from $510 million to $540 million to between $540 million to $570 million. Thank you for your time this morning. We would now like to open the call for questions. Operator?
