A $132m investment from Amazon – not a bad day for bullish ATSG
“Amazon intends to wire us $132m tomorrow.” It’s a nice sentence to be able to say, ...
The high cost of landing the Amazon Prime Air contract did not stunt ATSG’s growth in the first half, as it recorded a near-doubling of revenues and increased EBITDA of 17%.
Revenues for the six months to June were up $137.2m (or 38.7%) year-on-year, to $491.1m, while EBITDA reached $121m compared with $103.8m in 2016.
However, charges totalling $67.8m for the warrants granted last year relating to operating and lease agreements with Amazon, led to a net earnings loss of $43.7m.
But steep trajectory growth, alongside a 64% upturn to $13.9m in adjusted earnings from continuing operations, excluding non-cash warrant-related items, indicated a positive half-year.
President and chief executive of ATSG Joe Hete said: “Our outlook for the last six months of 2017 remains positive as we complete the Amazon deployments and lease more freighters to other customers.
“Our operational flexibility and broad service offerings keep us well positioned to support customers’ long-term and peak shipping season requirements.”
In addition to the results, Mr Hete noted that ATSG would be delivering its 20th 767 freighter to Amazon this month, just 17 months after formalising its relationship with the e-commerce giant.
This puts the carrier significantly ahead of Atlas Air – the other carrier servicing Amazon’s Prime Air operation – which currently supplies Amazon with six freighters.
Atlas Air is also contracted to supply Prime Air with 20 freighters, over a longer period, but said during its own results announcement that this would not be completed by the end of the year.
Mr Hete said: “Our total leased-aircraft portfolio has grown by eight 767s, as at June 30, compared with the same date a year ago.
“Excluding the two 767-300s required to complete Amazon’s 20-aircraft order, our purchase and conversion commitments will yield 12 additional 767-300s extending through the first half of 2018.”
To date, the company has signed, or is finalising, leases for nine of the 12 aircraft; while Mr Hete noted that “multiple” parties were in discussion with ATSG for the remaining three.
The company is forecasting full-year, adjusted EBITDA of $260m, with expectations of a 28% EBITDA increase in the six months to December, year-on-year, when ATSG expects to dry lease an additional seven freighters, five 767s and two 737s.
As with Atlas, whose pilots belong to the same union as ATSG subsidiary ABX Air, the carrier has found itself facing a backlash, as pilots claimed that delayed contract negotiations were resulting in increasing operational risks.
Captain Rick Ziebarth, a long-time pilot at ABX Air and executive council chairman at APA Teamsters Local 1224, said the carrier’s results should not distract shareholders.
“ABX Air pilots are proud to have contributed to another strong quarter, but these results shouldn’t distract shareholders from the storm brewing and intensifying operational risks,” said Mr Ziebarth.
“After years of delayed contract negotiations, the same staffing and attrition issues that have plagued carriers across the industry are coming to ATSG.”
Mr Ziebarth said unless “substandard contracts” were addressed, airlines would fail to retain and recruit qualified pilots to handle growing customer demands and mandatory retirements.
“It is time for management at ATSG and ABX Air to abandon their ‘take it or leave it’ approach with pilots,” he continued. “They must work with us in good faith to address these challenges and help build a successful future for our company, its employees and shareholders.”
ATSG has also announced it is setting up a joint venture with Precision Aircraft Solutions to develop an A321-200 conversion.
321 Precision Conversions hopes to win approval in 2019. ATSG acquired conversion company Pemco at the start of the year.