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GXO: HAMMEREDMAERSK: BOUNCING BACKDSV: FLIRTING WITH NEW HIGHS AMZN: NEW HIGH IN RECORD MARKETS WMT: RECORD IN RECORD MARKETSDSV: UPGRADEGM: BIG CHINA IMPAIRMENTCHRW: DEFENSIVEKO: GENERATIVE AI VISIONKO: AI USAGEKO: MORGAN STANLEY CONFERENCEGXO: NO SALE NO MOREGXO: CEO EXITDSV: TINY LITTLE CHANGE
GXO: HAMMEREDMAERSK: BOUNCING BACKDSV: FLIRTING WITH NEW HIGHS AMZN: NEW HIGH IN RECORD MARKETS WMT: RECORD IN RECORD MARKETSDSV: UPGRADEGM: BIG CHINA IMPAIRMENTCHRW: DEFENSIVEKO: GENERATIVE AI VISIONKO: AI USAGEKO: MORGAN STANLEY CONFERENCEGXO: NO SALE NO MOREGXO: CEO EXITDSV: TINY LITTLE CHANGE
“ATSG has never faced such a rapid shift in customer demand as occurred during 2023,” said returning CEO Joe Hete on yesterday’s earnings call.
“Except for 2008,” he added, “when DHL’s decision to shift from direct competition in the US express market nearly left us without a customer for our entire air cargo fleet.” (A decision which clearly still rankles after more than 15 years.)
But it wasn’t a lesson necessarily learned. This time, it is major customer Amazon that has hit ATSG’s earnings – with revenue from the retail giant said to be about $60m down – and while group revenue edged up 1%, to $2.1bn for the full year, adjusted ebitda fell 12%, to $562m.
Mr Hete explained: “We saw some significant changes to our market environment in the second half of the year, resulting in multiple headwinds that continued to impact our financial results in the fourth quarter.
“The most significant factor was an acceleration in lease returns of our 767-200 freighters, which reduced adjusted ebitda by approximately $33m in our Cargo Aircraft Management (CAM) leasing segment in 2023.
“These aircraft were in high demand as Amazon built its own air express network, starting in 2015, and even more so during the pandemic, when customers kept the aircraft in service longer than originally planned. While we always envisioned the market transitioning to the 767-300s from the 200s, the market softness has accelerated that process.”
Amazon is returning seven 767-200s, while leases on three 767-300s will also expire this year.
CAM’s Q4 pre-tax earnings fell 34% year on year, to $21m, while for the full year it was down 23%, to $109m. ATSG said more than 90% of the fall stemmed from the reduced 767-200 leasing results – or Amazon.
Block hours were down, said CFO Quint Turner. “Year over year, one of our airlines, ABX Air, was still operating some longer routes related to the pandemic, and those ended in the first quarter. The ABX piece is down … about a little shy of $20m. It’s a revenue decline because the block hours are down year over year, and the other two airlines are pretty flat.”
Military flying, which in ATSG’s case is mostly passengers, was also down, with block hours in the fourth quarter falling 24%.
There was some good news, including an improvement in international markets for mid-size freighters, with some A330s leased, and A321 deployments in Asia and Europe, following EASA approval for ATSG’s conversion programme.
But the soft market means the group is looking to cut costs – which does not bode well for the current pilot negotiations.
Mr Turner said: “On the salary and wage contract, we’re actually predicting a decline on those costs versus ’23, as naturally with some lower flying volumes and so forth plus some measures we’ve taken to increase cost efficiencies, we’re expecting headcount to be flat, and down, depending on the subsidiary company. So there you’re looking at a decline of $20m to $30m.”
And the labour negotiations are unlikely to be completed this year, conceded Mr Hete.
“There’s a stark difference in terms of what the expectation may be on the parts of the union side, versus what the company believes it can afford. They’re all being handled under the auspices of the National Mediation Board… But we don’t anticipate that any one of those contracts will get settled out this year, so it will probably roll into 2025.”
ATSG is also reducing capital spending by some $380m.
ATSG has forecasted adjusted ebitda of $506m for 2024, “which only includes existing and signed future leases, net of expected lease returns. We believe this approach gives a better indicator of our expectations”, explained Mr Hete.
He added that “everybody is down – I don’t care if you’re talking about FedEx, UPS, trucking companies, shipping companies…”.
He concluded: “Since returning as CEO last November, I’ve taken steps … to reduce spending on fleet expansion and right-size our airlines to their own changes in demand. If that isn’t enough, we’ll do more…
“But I’m also an optimist. During my career, long-term demand for cargo aircraft has only increased. I know that appeal of shopping online will require more aircraft lift to fulfil orders around the world.”
You can see the full results here
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