Warning to air shippers in year of the ox: 'strap in and try not to get gored'
“Shippers shouldn’t let down their guards, just yet” – a phrase that could be true ...
A confident ATSG has reported record results, and is anticipating another strong year as it increases its 767 fleet.
However, it was at pains to stress to investors it was not a normal airline company and unlikely to be significantly affected by the impact of coronavirus.
It said that its adjusted ebitda will increase to a range of between $487m and $492m this year, from $452m in 2019 (up 45% from 2018).
Last year saw ATSG increase revenues by 62.7%, to $1.4bn, with operating expenses up by the same rate. Fourth-quarter revenue rose 44% to $403.4m, while adjusted ebitda from continuing operations rose 29%, to $124.3m.
The company noted that “contributions from Omni Air and from the increase in externally leased 767 freighters drove the majority of the increase in adjusted ebitda”.
A source closely following the company told The Loadstar he expected ATSG to bring in around 17 more 767-300s, but at the earnings call, management said it projected eight to ten in modification this year – although it did not rule out more.
Seven have lease contract commitments, four from Amazon and three from UPS, and the others have LOIs. ATSG said its orderbook was “nearly full for the next two years”.
Capital spending rose from $161m to $454m in 2019, with $328m spent on 11 767-300 passenger aircraft, and to pay for the conversions.
“We are leasing more 767 freighters because e-commerce is driving delivery speeds,” said outgoing chief executive Joe Hete. “That includes completing our current 767 freighter lease commitments to Amazon and UPS, leasing other 767s to new and existing customers and growing our airline and other businesses.”
Rich Corrado, president and incoming chief executive, said: “We track the 767 fleet out there and there’s still over 300 of them left in the world. There are some airlines that have large fleets of them and we keep a very good view of those and the ones that we know will come available in 2021 and 2022.”
ATSG also pointed to the A321 conversions, with an end customer already arranged for the prototype, as well as a second aircraft shortly to undergo modification.
Mr Hete explained that it was a good fit to replace 757s, an aircraft that DHL will be moving away from.
“One of the reasons we jumped into the A321 is because it gives you essentially the same cubic capacity as a 757 for significantly lower operating costs, and I guess what probably bears it out more than anything else is that DHL says it needs to reduce the number of 757s in the network.”
While ATSG recorded results above its target for the year, it noted some challenges. But Mr Hete insists that investors understand that ATSG is likely to come under less pressure than other airlines from coronavirus.
“Like you, we are watching what appears to be an extreme response from Wall Street to coronavirus threats. We are particularly concerned about what we see as investors’ inability to differentiate ATSG from other companies that are far more vulnerable to its near-term effects. Our operations are primarily domestic and mostly time-definite express package-related.
“Apart from that, however, our business model also has built-in flexibility.”
ATSG did note that the US Department of Defense (DoD) was now its biggest customer, and that military flying could be impacted by the virus. (The DoD accounts for 34% of revenue, while Amazon contributed 23% and DHL 14%. Five years ago, DHL accounted for more than half.)
Mr Hete said: “Where we have the greatest potential disruption from our revenue stream would be in the things we do for the military, because of the number of foreign countries we fly through. Some you can come through, but then you have crews that would be quarantined on the other end.
“So far, we haven’t had any disruptions in our service levels, but you just don’t know how that thing is going to play out over time.”
He also noted that ATSG was not in a position to benefit from the current high demand for charters.
“We have got limited resources for extra flying, and it is 767 flying, so it’s regional based. So there’s a little bit of opportunity there, but not a lot.
“It’s not like we have four or five airplanes sitting around waiting for work. We don’t do much pure charter work anymore.”