Atlas looks ahead to 2016

On an operational basis, Atlas Air Worldwide Holdings (AAWW) had a solid fourth quarter and a very strong year in 2015. It’s reported fourth-quarter financial results were hit by a one-time charge related to settling an antitrust class action lawsuit, but operationally, both fourth-quarter and full-year performance was strong.

After adjusting for the $100 million settlement, Atlas’ fourth quarter net income was up 1.5% y-o-y to $39 million, despite a 3.4% decline in revenue to $472 million. Adjusted operating income for the quarter was up 3.4% to $69 million. On a reported basis AAWW saw a net fourth-quarter loss of $38 million and an operating loss of $44 million.

AAWW divides its operations into three business segments: ACMI (including CMI), Charter (including both commercial and military), and Dry Lease (through its Titan Aviation Leasing subsidiary).

ACMI: Block hours and revenue were up 7.8% and 3.3%, respectively, while segment direct contribution fell 14.1% to $48 million. The increase in block hours was driven by the addition of more aircraft, including four more 767-200Fs operating in CMI service for DHL Express. The smaller percentage increase in revenue is a reflection of the fact that CMI flying generates lower revenue per block hour. AAWW said the drop in segment contribution, was due largely to increased crew training costs “associated with our fleet growth initiatives,” (that is, Atlas has to have crew in place before it adds aircraft).

On the subject of additional aircraft, Atlas recently acquired two 767-300ERs, which it is having converted to freighter configuration by Bedek Aviation Group and which will enter the fleet in the first half of 2016.

Charter: Despite a significant increase in passenger charter block hours, segment revenue was down. However, since this was largely the result of falling fuel prices, it did not have a negative bottom-line impact. In fact, direct contribution from the Charter segment was up almost 50% in the quarter to $40 million.

Dry Leasing: There was little change in the company’s dry leasing operations from 4Q14 to 4Q15. Revenue, was down 1.9% to $24 million, while direct contribution rose 4.4% to $8 million.

Of course, the big news about AAWW is its recent agreement to acquire Southern Air in an all-cash transaction of about $110 million. This had no impact on fourth-quarter results, and regarding future impact, Atlas has repeatedly stressed its belief that the acquisition will be immediately accretive. Southern operates five 777Fs and five 737-400Fs, all in CMI service to DHL Express. DHL is AAWW’s single biggest customer (accounting for about 24% of the company’s revenue in 2015),  CEO Bill Flynn made it clear during a discussion of the fourth-quarter results that DHL was highly supportive of the acquisition.

However, Mr. Flynn also stressed that this was not just about DHL, but also a move to add two new aircraft types to Atlas’ operating capability – a process that he said would take about eighteen months if done organically. Atlas currently operates 747 and 767 aircraft, but once the integration of Southern is complete, Atlas will be able to take advantage of opportunities requiring 777 and 737 operation – whether to support expansion of service for DHL, or for other customers.

Looking ahead, Atlas began by looking back. The company pointed out that it benefited strongly when labor problems at US West Coast ports boosted demand for air freight in the first quarter of 2015 – a benefit that will not be repeated in 2016. But despite this, Atlas said it expected adjusted earnings in 2016 to show “low-to-mid-single-digit percentage growth over 2015.” This guidance is based on continued increase in air freight demand, benefits from debt refinancing undertaken in 2015, increased fleet size, and the accretive nature of the Southern acquisition.