Atlas looks to moderate fleet growth as tariffs sting in 2Q19

Despite a 10.5% year-over-year increase in block hours flown in 2Q19 across the company’s ACMI and Charter segments, Atlas Air Worldwide Holdings reported operating revenues that were nearly flat for the quarter (-0.3%) at $664 million. Company CEO Bill Flynn acknowledged on an earnings call with analysts that the third tranche of tariffs that went into effect in mid-May 2019 began to have a notable impact on air cargo volumes, and subsequently, yields. Results were also affected by “labor-related service disruptions,” added Flynn. After a four-year period during which the company’s ACMI, Charter and Dry Leasing units experienced phenomenal fleet growth, Atlas CFO Spencer Schwartz said that most fleet additions during 2H19 would be to the “asset-light” ACMI fleet, most of which will likely be aircraft owned by other carriers and transferred to Atlas carriers for CMI operations. As it stands now, the company does not currently have any outstanding orders for freighter conversions or new-build freighters. Already this quarter, much of Atlas’ fleet growth was in the CMI segment as Southern and Atlas began operating six additional aircraft. Southern Air began operating three 737-800BCFs on a CMI basis for Amazon and two 777Fs on a CMI basis for DHL Express . Atlas Air, meanwhile, began flying a 747-400F on a CMI basis for NCA. Looking ahead to the remainder of the year, Southern will add two more 737-800BCFs for Amazon, while Atlas will begin flying two additional 747-400Fs on a CMI basis for NCA (see also: third NCA 747-400F arrives in maintenance before reentering service with Atlas ). The company’s dry leasing also has a 777F (35606, ex-Emirates) awaiting placement. Atlas also plans to upgauge the 747-400Fs it currently operates on an ACMI-basis for Qantas. According to a statement by Atlas this April, it had agreed with Qantas to upgauge the two 747s to -8Fs from “late July 2019” and would fly them on trans-Pacific routes connecting Australia and Asia with the US. As we reported , the upgauge has been delayed, but is still expected to occur in Q3, following “regulatory sign-offs”. As can be seen from the chart above, the total number of aircraft equivalents operating across Atlas’ ACMI, Charter and Dry Leasing segments has increased from 60.8 units in 2Q15, to 112.1 at the end of 2Q19. Much of the growth in the dry-leased and ACMI fleet during this period stems from the lease of twenty 767-300Fs to Amazon. Atlas has also added the equivalent of four 747-400Fs to its charter segment since 2Q15. Returning to the 2Q19 carrier’s results, operating income also declined, by 85.3% to $9.0 million. However, net income was $86.9 million for the quarter, thanks primarily to income tax benefits. Although a sudden de-escalation of the Trade War between China and the United States is a possibility, and such a move could throttle air cargo demand, today’s headlines do not suggest this is likely. Earlier today, U.S. President Donald Trump announced via Twitter that he would impose an additional 10% tariff on $300 billion in Chinese imports, beginning 1 September. Looking ahead to the remainder of 2019, Flynn expects “full-year adjusted net income will total approximately 80% of our 2018 adjusted net income.”

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