News / Upbeat Atlas Air notes Q1 losses, but says 2017 is 'off to an exciting start'

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Atlas Air yesterday announced a net first-quarter loss of $752,000, down from a profit of $471,000 a year earlier, as expenses grew for its fleet expansion.

Revenue was up 13.6% to $475m and operating income was up nearly 14%, to $24m, while there was also an unrealised loss on financial instruments of $5.2m, related to outstanding warrants.

Cash and cash equivalents fell from $124m at the end of December to $109m, with Q1 operating cash flow of $18.6m, while capex was $21m. Payments for flight equipment and modifications rose to $118m from $84m a year earlier.

Money in the bank fell from $331m a year ago to $118m.

The airline was upbeat about the results however, announcing them at the same time as a placement of two 747-8Fs with Cathay Pacific on an ACMI contract, starting this month.

The aircraft were previously chartered by Atlas, after being returned by Etihad and a Chinese forwarder. Atlas also noted recent agreements with Asiana, Nippon Cargo Airlines and FedEx.

So, despite the loss, president and CEO Bill Flynn said 2017 had got off “to an exciting start”. He added: “Earnings in the first quarter were in line with our expectations and our outlook for the year.”

The company anticipates that 2017 adjusted income, which in Q1 was $8.3m against $7.7m a year ago, would grow by “mid-single-digit to low-double-digit percentage compared with our 2016 adjusted income of $114.3m”.  Second-quarter adjusted net income is expected to be 15-20% higher than last year’s result of $20.2m.

Atlas now has four aircraft flying for Amazon and is financing more. Last month, it borrowed $41m, secured by its first two Amazon 767s.

The carrier said it had also seen more military flying, with stronger cargo demand than expected, although pricing had fallen. Mr Flynn said that the military was “a very large portion of our charter business overall”.

In an earnings call, the company noted the current strength of the market. But while CFO Spencer Schwartz said the carrier used to rely on a strong peak season or new product introduction, “that is not what we are seeing today”, noting that e-commerce and different models were leading to a year-round market.

Nevertheless, Mr Flynn told analysts that “given the inherent seasonality of air freight demand”, they should expect more than 70% of Atlas’s adjusted net income to occur in the second half.

Atlas released its results at the same time as rival ATSG, which saw revenue increase 34% to $237.9m. Operating expenses rose 35% to $220m, while net earnings reached $9.9m, up 21%.

ATSG has 61 aircraft and expects to take delivery of a further 12 this year – 10 more 767-300s and two 737-400s. It has 10 aircraft undergoing or awaiting conversion.

Cargo aircraft management revenue fell$3.7m, while pre-tax earnings of $13.3m were down $6.2m. The group’s pre-tax loss on its ACMI services improved to $3.7m from a loss of $10m a year earlier.  The loss included  $4.1m in higher pilot training costs.

External customer revenues from all other activities in the first quarter were $62.2m, up 85%. External maintenance revenue increased $16m, and turnover from parcel handling and logistical support services was up $13m.

ATSG projects capital expenditure this year of about $355m, for its fleet expansion. However, as Amazon switches its hub to Cincinnati from Wilmington this month, it will lose some of its logistics services business.

Both companies have suffered recently from a campaign waged by pilots against their customer DHL and for increased wages at the carriers. The pilots belong to the same union branch.

APA Teamsters Local 1224 claimed Atlas had lost eight pilots in two days last week and “a record number at the start of 2017”.

Capt Robert Kirchner, Atlas Air pilot and Teamsters Local 1224 executive council chairman, said: “At a time when our long-term growth and profitability depend on us delivering for customers like DHL and Amazon, the company’s refusal to confront these challenges undermines our business strategy and our ability to get the job done.

“The urgency of this problem will only intensify as our pilots continue to work under substandard contracts and turn to our competitors for better opportunities.”

Atlas did note in its results, however, that it had reached a collective bargaining agreement with its “outstanding” dispatchers, and said talks with pilots were continuing.

You can see Atlas Air’s full results here, and ATSG’s here.