ATSG continues to grow its freighter fleet thanks to the benefits of e-commerce
Air Transport Services Group, a provider of leased cargo aircraft and outsourced airline operations services, said Thursday that adjusted pretax profit rose 80% in the second quarter to $67 million, customers from express delivery continuing to request more planes for urgent e-commerce deliveries. .
The results came hours after main competitor Atlas Air disclosed a $5.2 billion private takeover by three investment funds led by Apollo Global Management.
ATSG (NASDAQ: ATSG), based in Wilmington, Ohio, generated revenue of $524 million, up 24% from the same period last year. Adjusted earnings before interest, taxes, depreciation and amortization rose 23% to $158 million. Adjusted earnings of 59 cents per share beat Wall Street estimates.
The earnings adjustment discounts last year’s one-time gains of $38 million in federal COVID-19 relief for its passenger airline and $30 million from stock option revaluations.
The company said it was leasing nine more Boeing 767 freighters to customers than a year ago and flight hours for subsidiaries ABX Air and Air Transport International had increased. Its three main customers are the Department of Defense, Amazon (NASDAQ: AMZN) and DHL Express.
Inflation increases costs for employees, contract labor, crew travel and other airline expenses, management said.
“Despite continued inflation, we expect to meet our 2022 financial targets as demand for our express parcel network assets and air operations remains strong,” CEO Rich Corrado said. “Online shopping habits, now entrenched and bolstered by often lower online prices, will continue to drive express parcel delivery networks that ensure fast and reliable delivery. This trend, in turn, will drive ATSG’s cash flow growth through the current economic cycle and beyond.
ATSG’s leasing arm has 89 aircraft under contract and plans to lease six more in the second half – four 767-300s and two Airbus A321-200 narrow-body freighters once they are upgraded to carry heavy containers on the main deck. Cargo Aircraft Management (CAM) bought five used 767-300 and four A321-200 passenger planes during the first half to convert them to freighters, the company said. A 767 aircraft retired from charter airline Omni Air’s fleet will also be sent for conversion.
A total of 19 CAM-owned aircraft were undergoing or awaiting conversion to freighters, including five A321s.
The ATSG said earlier this year that the first two A321s would go to Dublin-based ASL Aviation Holdings, a contract airline for express delivery companies and Amazon Air.
The A321 is a new airframe for ATSG, which until now has exclusively operated Boeing wide-body aircraft. It also plans to convert 29 Airbus A330-300 equivalents to 767s to access more planes as the pool of used 767s begins to dwindle and conversion facilities face production backlogs. The A321s also provide access to the hot market for regional packages, in particular daily shuttles between secondary cities and major network hubs.
The ATSG has a 360-degree profitability strategy for A321 freighters, which will compete with converted Boeing 737-800 freighters and older 757s. It is also a joint venture partner in 321 Precision Conversions, which designed the conversion kit – wider cargo door, reinforced floor and wing box, rigid cockpit barrier and container conveyor system – and received approval from US aviation regulators. Pemco’s in-house maintenance and repair organization performs many installations for the joint venture. Eventually, the ATSG may also offer crews to fly the standard jets for customers.
The company said it plans to lease a record 18 freighters in 2023, including 14,767 and four A321s.
“The majority of these orders are secured by customer deposits, and almost all are from existing customers, giving us great confidence in the growth of our base rental returns over the next 18 months,” said Corrado.
ATSG previously announced that it has ordered 20 of the converted A330 freighters. The first renovations will begin next year with deliveries starting in 2024.
Management is advancing capital expenditures of $35 million to acquire aircraft for conversion this year rather than in 2023. Total investments this year, primarily funded by free cash flow, are expected to be $625 million , including $420 million for growth.
ATSG’s dedicated transport segment achieved a 27% increase in revenue. Significantly higher passenger flights and the use of eight additional freighters – four from CAM and four provided by customers to operate – were the main reasons for the jump.
The company’s turnkey product provides aircraft, crew, maintenance and insurance under long-term contracts, while customers assume responsibility for fuel, operating costs and shipment production .
The ATSG said freighter revenue operating hours increased 7%.
The company maintained its full-year guidance of $640 million for adjusted EBITDA, up $100 million from a year ago.
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