Atlas to acquire Southern Air – but it’s all about DHL

Atlas Air Worldwide Holdings (AAWW) signed a definitive agreement to acquire Southern Air Holdings, a privately held US company with two airline subsidiaries – Southern Air, and Florida West International Airways – for US$110 million. Atlas said it expected the acquisition to close “in the next few months,” assuming regulatory approval by the US Department of Transportation.

While the deal will increase Atlas’ already-large freighter fleet (see chart), it is, in many ways, more about DHL Express than anything else. Not many years ago, AAWW was an ACMI and charter operator, with a somewhat troubled scheduled-service subsidiary, Polar Air Cargo. That changed in 2009, when DHL Express took a 49% equity stake in Polar, and began using Polar to fly several 747-400Fs in support of its US international business.

Since then, the Atlas/DHL partnership has considerably strengthened, and (by our estimate) AAWW now operates twelve 747-8 and 747-400 freighters for DHL on an ACMI basis (through Polar), and two 767-300 and nine 767-200 freighters for DHL on a CMI basis. That is, AAWW is operating twenty-three of the fifty-eight aircraft in its operating fleet – 40% of the fleet – in service to DHL. In addition, AAWW’s dry-leasing subsidiary, Titan Aviation Leasing, leases two 777Fs and one 757-200F to carriers operating for DHL.

Like Atlas, Southern Air has evolved considerably since Jim Neff resurrected it from the ashes of the bankrupt Southern Air Transport in 1999. From that point through 2007, Southern Air offered ACMI and charter service with a fleet of up to eighteen 747-200Fs, eventually supplemented with some 747-400Fs. Things began to change in 2007 when US-based private equity firm Oak Hill Capital Partners acquired majority ownership, and merged Southern with the smaller all-cargo carrier, Cargo 360. Oak Hill subsequently put four of its own 777Fs into the Southern fleet and gradually shed all of the 747 freighters. In 2013, Oak Hill transferred the leases on its 777Fs to DHL Express and entered into a long-term contract with the German integrator under which Southern would operate the freighters on CMI basis.  In the last two years, that contract has expanded to include five freighter-converted 737-400Fs, and a fifth 777F.

While DHL may be the number-one customer at Atlas, it is the only customer at Southern Air.  So Atlas’ description of Southern’s operation as a “highly complementary business”  is spot on.

As to Florida West International Airways (FWIA), while its operation is not particularly complementary, it is also not very big. At present, Cargo Facts believes FWIA leases one 767-300F from Lan Cargo, and operates that freighter for Lan Cargo. The carrier has historically operated throughout Latin America and the Caribbean region from its base in Miami, but how Atlas plans to use FWIA’s certificate remains to be seen.

Now, some details:

• Oak Hill Capital Partners is the majority owner of Southern Air Holdings, which is the parent of Worldwide Air Logistics Group, which in turn is the parent of the two airlines, Southern Air and Florida West International Airways.

• The acquisition includes all four of the above companies – Southern Air Holdings, Worldwide Air Logistics Group, Southern Air, and Florida West.

• AAWW says the acquisition will be an all-cash transaction, funded “using available cash on hand,” with no debt being assumed. AAWW also said the acquisition would be “immediately accretive,” with Southern adding “approximately $100 million to Atlas Air Worldwide’s annual revenues.”

• Taking over an ongoing operation with active 777F and 737F fleets will allow AAWW to add more of those types (either for DHL or other customers) without having to suffer the “adding a new type to your fleet” headaches.

• As subsidiaries of Atlas Air Worldwide, Southern Air will continue to operate from DHL’s hub at Cincinnati/Northern Kentucky International Airport (CVG), and Florida West will continue to operate from Miami International (MIA).

• Atlas Air Worldwide has three major subsidiaries: Atlas Air (cargo and passenger ACMI, CMI, and charter operations), Polar Air Cargo Worldwide (51/49 joint venture with DHL Express, operating primarily for DHL), and Titan Aviation Leasing (dry leasing).

• Atlas’ ACMI customers include (in addition to DHL), Etihad Airways, Qantas, Panalpina, Astral Aviation, BST Logistics, and Chapman Freeborn.